Did the tax return threshold change for high-earners?

Yes, but you had to be Nancy Drew to have noticed. 

Unless you’re a keen fan of HMRC’s monthly agent update – cue tumbleweed – you may have missed their recent rule change that affects high-earners. So let us catch you up. 

At the end of May 2023, HMRC announced that they’d be raising the threshold at which people with a salary (PAYE) have to file a tax return. The rule was that you had to file if you earned £100,000+ per year. 

But it changed on 6th April 2023. From this point, you didn’t have to file unless you earned £150,000+.

From the 2024/25 tax year, high earners who are purely PAYE and have no other streams of income now don’t have to file a tax return at all.

Why do you file a tax return?

Great question. Get ready to sink your teeth into the answer. 

In true HMRC fashion, there’s an extra and expensive layer of confusion when it comes to taxing high-earners. 

As you may (or may not) know, you’re usually taxed on multiple tax rates at once. These multiple rates account for different portions of your income. Check out the image below to see a visual of what we mean by this. 

When you earn £100k+ and start to lose your personal allowance, each tax-free £1 you lose becomes £1 of income that needs to be taxed. But – horror – it’s taxed at both 20% (the basic rate) and 40% (the higher rate). This gives it a whopping 60% total 🤯

You therefore may need to file a tax return to make sure that this is being done correctly and that you don’t owe HMRC any money. Yes, you read that right. 

£100k+ = PAYE only income?

OK, stay with us. This might be a little confusing.

From April 2023, you had to file a tax return if you earned £150k+ in a tax year. This didn’t only come from PAYE income though. It could also be made up by self-employed income, property income, investment income etc.

What’s your adjusted net income?

Your adjusted net income is a fancy way of saying your total taxable income. Generally, this doesn’t include allowances or tax reliefs. But it does when it comes to the personal allowance. Classic.

As a result, the tax return that high-earners do is essentially to make sure that your adjusted net income is correct. Which it often isn’t on this salary! 

If your tax return reveals that you owe money to HMRC, you pay this before the tax return deadline on 31st January. HMRC will also change your tax code to reflect the correct taxing of your PAYE income. 

If you want to work out whether your tax code is right for your income, check out our tax code checker.

What next for £150k+ earners?

Basically it’s not you, it’s them. 

After you filed your 2022/23 tax return, PAYE only earners should have had an exit letter from HMRC, telling you that you no longer need to file. 

See ya 👋

We recommend that you check your tax code though and make sure you’re not being over or under charged from PAYE.

Don’t forget that if you earn money outside PAYE, you’ll still need to file, even if you earn less than £150k.

Will I stop losing the personal allowance?

Afraid not. That’s what makes this change even more mysterious. 

HMRC make a lot in tax from high earners, especially those unaware that they had to file a tax return in the first place. So it’s an unusual move to raise the threshold to file without also changing the circumstances that make filing necessary.

In a nutshell, you’ll still lose eligibility to the personal allowance when you start earning £100k+.

Confused or in need of some professional advice? Don’t forget you can book a one-off consultation with an accredited accountant for £119, all in. Learn more here. 

Why did this change happen?

Folks, who knows the inner workings of HMRC?

So far, the only information we’ve seen is from the agent update. It could be a precursor to HMRC automating how they taper the personal allowance through PAYE, but they’ve given no indication of this if it is on the cards…

Stay tuned!