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In recent months, HMRC has been investigating wealthy taxpayers who may have fallen behind on their Self-Assessment tax returns. Let’s delve into the present circumstances, how they impact people with high incomes, and the proactive measures that affect taxpayers should be considered.
HMRC’s Recent Actions
Earlier this year, HMRC sent letters to wealthy taxpayers who still needed to submit tax returns for the 2020/21 and/or 2021/22 tax years. These letters were specifically targeted at individuals who had filed returns for surrounding years but missed one or two in between. For instance, those who submitted returns for 2020/21 and 2022/23 but not 2021/22, or those who filed for 2019/20 and 2022/23 but missed both 2020/21 and 2021/22.
The Deadline and Consequences
HMRC has set a deadline of 12 July 2024 for these taxpayers to submit their outstanding returns. Failure to meet this deadline will result in HMRC issuing a determination of the tax they believe is due based on the information they have on file. Additionally, late filing penalties will be applied. However, it’s worth noting that taxpayers can appeal against these penalties if they have a reasonable excuse for the late filing.
What to Do If You’ve Received a Letter
If you’ve received one of these letters but believe you’re not required to file a return, it’s crucial to pay attention to the communication. Instead, you should contact HMRC directly, either by calling 03000 516640 or emailing response2@hmrc.gov.uk.
When Is a Tax Return Required?
Traditionally, HMRC has required wealthy taxpayers to submit tax returns, even if they are taxed under PAYE (Pay As You Earn). This requirement has been in place presumably because high-income individuals are more likely to have additional income from savings and investments that may be taxable.
For the 2022/23 tax year and earlier, PAYE taxpayers with income of £100,000 or more were required to file a tax return, even if they had no other income to declare. This threshold has been increased to £150,000 for 2023/24 returns and will be abolished completely for 2024/25 returns onwards.
However, wealthy taxpayers within the PAYE system may still need to file a return if they have other income to declare. This could include:
- Self-employment income exceeding £1,000
- Income from being a partner in a partnership
- Falling within the scope of the High Income Child Benefit Charge
- Having chargeable gains to declare
- Rental income exceeding £1,000
- Taxable foreign income
Recent Changes Affecting Tax Liabilities
Recent changes in tax rules and economic conditions may mean that some PAYE taxpayers now have tax liabilities on their savings or dividend income for the first time. Key changes include:
- The additional rate threshold has been reduced to £ 125,140 from 2023/24 onwards, meaning taxpayers with income between £125,140 and £150,000 have lost their personal savings allowance.
- Rising interest rates may push savings interest above the personal savings allowance, even for higher-rate taxpayers.
- The reduction of the dividend allowance to £1,000 for 2023/24 and £500 for 2024/25 may result in tax being due on dividends for the first time.
What Wealthy Taxpayers Should Do
If you’re a high-income individual within the PAYE system, it’s crucial to review your financial situation and determine whether you need to file a self-assessment tax return. If you’ve received a notice to file but don’t believe you need to submit a return, it’s advisable to contact HMRC directly to clarify your situation.
Although HMRC is simplifying the Self-Assessment process for many PAYE taxpayers, wealthy individuals still need to be vigilant about their tax obligations. It’s important to stay informed about changes in tax rules and thresholds and maintain open communication with HMRC to ensure compliance and avoid penalties.