Wealthy taxpayers within PAYE – When is a tax return required?

Earlier this year, HMRC wrote to wealthy taxpayers who had not submitted tax returns for 2020/21 and 2021/22. A letter was sent where the taxpayer had submitted a return for 2020/21 and 2022/23 but not for 2021/22 or where a return had been submitted for 2019/20 and 2022/23 but not for 2020/21 or 2021/22. Taxpayers who received a letter from HMRC had previously been notified to complete a self-assessment tax return.

The letter asked taxpayers with outstanding returns for the missing year(s) to submit them by 12 July 2024. Where this has not been done, HMRC will determine the amount of tax they think is due based on the information they hold. They will also charge late filing penalties. However, the taxpayer can appeal against the penalties if they have a reasonable excuse for filing late.

Taxpayers who received a letter but do not think a return is required should contact HMRC on 03000 516640 or email them at response2@hmrc.gov.uk rather than simply ignoring the letter.

When a return is required

Where a taxpayer is wholly within PAYE, it is understandable that they may not realize that they need to file a return as the tax that they owe should be collected through the PAYE system. However, despite this, HMRC has historically required wealthy taxpayers to submit tax returns, even if they are taxed under PAYE. Presumably, this is because wealthy individuals are more likely to have savings and investment income on which tax may be due.

For 2022/23 and earlier tax years, PAYE taxpayers with income of £100,000 or more needed to file a tax return even if they had no other income to declare. This threshold is increased to £150,000 for 2023/24 returns and abolished completely for 2024/25 returns onwards.

However, a wealthy taxpayer within PAYE will still need to file a return if they have other income to declare.

This will be the case if they were also self-employed and had trading income more than £1,000, they were also a partner in a partnership, they fell within the scope of the High Income Child Benefit Charge, they have chargeable gains to declare, they had rental income over £1,000 to declare or received taxable foreign income.

A tax return may also be required where the taxpayer has savings and investment income to report. It is important to review this as recent changes may mean that a PAYE taxpayer now has a tax liability on their savings or dividend income for the first time.

The reduction in the additional rate threshold to £125,140 for 2023/24 onwards meant that taxpayers with income of between £125,140 and £150,000 lost their personal savings allowance as the allowance is only available to higher and basic rate taxpayers. Even if the taxpayer remains in the higher rate band, rising interest rates may mean that the interest on their savings now exceeds the personal savings allowance. Similarly, the reduction in the dividend allowance to £1,000 for 2023/24 and to £500 for 2024/25 may mean there is a tax to pay on dividends for the first time.

Wealthy taxpayers within PAYE should check whether they need to file a return. If they have received a notice to file and do not think they need to submit a return, they are advised to contact HMRC.

Partner note: TMA 1970, s. 8; www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return.

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