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When is the tax threshold changing for employees? 

From the 2023-24 tax year onwards, employees who are only taxed through PAYE will see the threshold where they need to file an individual tax return increase from £100,000 to £150,000. This change will not impact individuals who must file a tax return for other reasons.  

For example: 

  • You are a landlord and receive rental income 
  • You are self employed 
  • You have a liability to pay the High-Income Child Benefit Charge 

You can read more about the HMRC announcement here.  

Who could end up paying too much tax? 

Where a higher earner contributes to a personal pension scheme or makes charitable Gift Aid donations, they will be entitled to additional tax relief, and would ordinarily claim this on their annual tax return.  

From 5th April 2024, when an individual's only income arises from their employment and this ranges between £100,000 and £150,000, they will no longer automatically be sent a tax return to complete. This causes a problem because HMRC may not be aware of their eligible contributions, and this could result in valuable relief not being claimed, resulting in individuals potentially paying too much tax.  

Knowing what pension payments attract tax relief can be complicated. If you are in the situation where additional relief can be claimed and you no longer need to submit a tax return, you will either need to write or call HMRC to claim relief. While HMRC provides free guidance here, this can be a confusing area and the danger is some individuals pay more tax than they need to. 

As above, if you need to file a tax return for other reasons, HMRC will continue to issue a return which you will need to complete.  

Who could underpay tax and be at risk of a fine? 

After your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you go over the £100,000 tax bracket. Therefore, where your income falls between £100,000 and £125,140, you will have to be much more vigilant when checking the need to file a tax return. 

Because employment income and personal pension contributions can fluctuate from year to year, it is not clear how these individuals can accurately ensure they pay sufficient tax and not become liable to penalties for underpayment because their personal allowance is not correctly adjusted. 

Why is HMRC making this change? 

Although relaxing the requirement for higher earners to submit tax returns may initially sound sensible, there are fears this change is motivated by the need to cut HMRC’s workload and will result in more tax errors. 

HMRC has recently closed several helplines and has been suffering due to a lack of investment. 

Jon Stride, Vice Chair of the ATT Technical Steering Group, said: “The obvious outcome of this rule-change will be a reduction in the number of tax returns submitted each year. At a time when HMRC’s resources are stretched to breaking point, and their service standards are attracting frequent criticism, the appeal of reducing the number of taxpayers they have to deal with needs to be balanced against the potential tax errors this change could cause.” 

What should you do? 

You can check whether you need to submit a 2022/23 tax return using the HMRC checking tool. From 5th April 2024, for those affected by these changes, there will be a greater need to familiarise yourself with the tax rules, so you do not suffer because of these changes.  

Date published 5 Jul 2023

Andy Gibbs, ATT, CTA

Andy is Head of Group Technical and is a qualified Chartered Tax Adviser (CTA) and holds the STEP Advanced Certificate in Trust and Estate Accounting. Andy has dealt with both tax compliance and tax advisory projects across a range of industry sectors.

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