HMRC has introduced three changes to the criteria for filing self assessment tax returns, this is part of their ongoing efforts to simplify their services and streamline workload.
Threshold bumped for 2023/24
The first announcement came in June 2023 when the tax authority bumped the threshold above which individuals with employment income only should file for self assessment (SA) from £100,000 to £150,000. This is effective for the current tax year 2023/24, with any taxpayers currently in self assessment whose earnings on their 2022/23 tax return are between £100,000 and £150,000 receiving an SA251 exit letter.
However, some critics are concerned the move might have the opposite effect by over-complicating matters for certain taxpayers as amounts such as personal pension payments and gift aid donations will need to be brought into the Pay As You Earn (PAYE) coding. Some taxpayers risk overpaying tax if refunds and reliefs that would have been claimed on the SA return are not correctly processed through PAYE.
More changes for 2024/25
Continuing with the simplification strategy the Chancellor announced in the Autumn Statement that from the 2024/25 tax year, the £150,000 threshold will be removed entirely and all individuals with employment as their only substantial source of income will be de-registered from Self Assessment (SA) and taxed via PAYE.
This change is estimated to lift up to 338,000 taxpayers out of the SA regime in 2024/25.
There are certain circumstances where taxpayers will still need to register and file for SA regardless. This includes where an individual has self-employment income over £1,000; other untaxed income over £2,500 that cannot be taxed via the PAYE system; employment expenses in excess of £2,500; or income from savings and investments over £10,000.
HICBC to be taxed via PAYE
The third change to the Self Assessment criteria promises to remove is the High Income Child Benefit Charge (HICBC). Currently, a taxpayer who is otherwise not required to file under SA (because their sole income is from employment for example), but whose adjusted net income exceeds £50,000 and they or their lower earning partner are receiving child benefit, is forced into self assessment by the resulting liability to the HICBC and must register and file a return in order to pay the charge.
In July, the government published a statement for potential inclusion in the next Finance Bill that promised to remove this requirement:
“The government wants to simplify the process for customers who become liable to the High Income Child Benefit Charge, particularly for those who currently need to register for self assessment to pay the charge. The government will provide details in due course on how it will enable employed customers to pay through their tax code, without the need to register for self assessment.“
No further information has been provided since and the HICBC did not feature the Autumn Statement, but when it happens this will be a welcome change for the many taxpayers caught out by the unclear HICBC requirements.
Payroll complications
When launched, the changes to the Self Assessment criteria may simplify the job of the individual taxpayer, but bringing additional income into PAYE and the coding of the potential HICBC will serve up an extra headache for those working in payroll.
The tapering of the personal allowance is one such complexity that will be brought under the remit of PAYE for the current tax year. In 2023/24, taxpayers see their personal allowance reduced by £1 for every £2 above £100,000. PAYE currently cannot deal with the tapering of the personal allowance, but that will need to change for affected taxpayers no longer meeting the SA criteria from 2023/24 or 2024/25.
ICAEW response
In its response to HMRC’s discussion document, ICAEW highlighted the potential increased reliance on the PAYE system. In light of the extra complexity and risk of errors, the professional body recommended that HMRC consider ways to make it easier for taxpayers to check, understand and update their own tax code.
“In the absence of simplification (or alongside it,) HMRC could encourage PAYE taxpayers to take an interest in their tax affairs and to provide updates on changes in circumstances by providing a simple and straightforward digital service for reporting changes that affect their tax code. The services currently available in the personal tax account to update tax codes are not comprehensive or easy to use.”
Conclusion
As to why HMRC has decided to bring in these purported ‘simplifications’ to the SA criteria now, the response from the AccountingWEB community is resoundingly cynical, as summarised by onthespottax: “Currently, we have to look at most changes from HMRC through the lens of lack of staff/not being able to cope with workloads. It’s the only way these changes make sense…”
Taxpayers can use HMRC’s online tool to check if they need to send a self assessment tax return for 2023/24. Anyone with employment income can, under ITEPA 2003, register to file for self assessment voluntarily and many with more complex affairs or claims to make may decide that this is the simpler path to tread.
If you want to know more about how these changes will affect you, or your business, book a consultation with us at FiguresUK. We can help you get ahead of the changes and understand them for your own personal circumstances, or for your business.
Jason Cannon
Managing Director and Figures UK Founder
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