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Did the tax return threshold change for high-earners?

  • 4 min read
  • Last updated 11 Sep 2023

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 now it’s changed. From the 2023/24 tax year which started on 6th April 2023, you don’t have to file if you’re PAYE unless you’re earning £150,000+.

A bit of background 🤓

If you don’t earn anything close to £100k, it’s likely you had no idea that filing a tax return was a requirement. Even some high earners actually don’t know that they may need to file!

So, here are the facts.

When you start earning £100k+, you start to lose entitlement to something called the personal allowance. The personal allowance is the first chunk of your income that you earn tax-free.

In the 2023/24 tax year, the personal allowance is £12,570, but it’s subject to change depending on the chancellor at the time, the Autumn/Spring Statements, and the way of the wind.

When you earn £100k+, you lose £1 of your personal allowance for every £2 you earn over £100k. So, by the time you earn £125,140, you’re not entitled to any of the personal allowance.

Maths, folks.

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. 

Income tax rates UK

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 have to file a tax return if you earn £150k+ in a tax year. This doesn’t only come from PAYE income though. It can also be made up by self-employed income, property income, investment income etc.

Who needs to file a tax return?

With the old £100k threshold, you’d have to do a tax return if you earn:

  • £150k from an annual salary ✅
  • £101k from an annual salary ❌
  • £101k from an annual salary, plus rental income ✅
  • £30k from an annual salary, plus £2k from self-employment ✅
  • £101k from rental income and freelancing work ✅

You only don’t do a tax return if your total income is PAYE only, and less than the self assessment threshold, £150,000.

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.

Your situation

Outlined number oneImage of an arrow
Tax code
Annual salary

Tax and profit

Outlined number two
  • PAYE earnings

How your tax code is calculated

There are three main components that determine your tax code:

  • What you earn
  • Allowances you’re claiming
  • Your tax-free allowances

I don’t earn £150,000 – what do I do now?

If you usually file a tax return as a high earner, things are changing. From 2023/24, you’re no longer required to do it until you earn £150,000+. 

This means that unless you also earn income outside PAYE, you don’t need to file a tax return after 31st January 2024. 

What next for £100k+ earners?

Basically it’s not you, it’s them. 

When you file your 2022/23 tax return, if you have PAYE only income between £100,00-£150,000, HMRC will send you an exit letter telling you that you no longer need to file. 

See ya 👋

But, if you’re a high earner with an income under £150,000, you should make sure to contact HMRC to check you’re on the correct tax code!

If you earn money outside PAYE though, you’ll still need to file, even if you earn less than the new £150k threshold.

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!

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