Threshold bumped for 2023/24
The first announcement came in June 2023, when the Inland Revenue raised the threshold above which only those with income must claim Self Assessment (SA) from £100,000 to £150,000. This applies to the current tax year 2023/2 and all self-assessed taxpayers with income in 2022/23. between £100,000 and £150,000 in their annual tax return will receive a SA251 Waiver Letter.
This has been met with mixed reviews, with some critics concerned that the move could backfire by complicating matters for certain taxpayers, as amounts such as personal pensions and gifts must be included in earnings-based income (PAYE) coding. . Some taxpayers risk paying too much tax if refunds and tax credits claimed on their SA return are not processed correctly through PAYE.
Further changes for 2024/25
However, ploughing on with the simplification under the strategy, the Chancellor announced in the Autumn Statement that from the 2024/25 tax year, the £150,000 threshold will be completely abolished and all individuals whose only significant source of income is employment will be removed from SA and taxed via PAYE.
This change will take around 338,000 taxpayers out of the SA system in 2024 /2025. In certain circumstances, however, taxpayers must file and submit an SA application. This also applies if the person’s self-employment income is more than £1,000; other tax-free income over £2,500 which cannot be taxed through the PAYE system; labour costs over £2,500; or savings and investment income of more than £10,000.
HICBC to be taxed via PAYE
The third change to the SA criteria promises to remove from the above list the notorious High Income Child Benefit Charge (HICBC). Currently, a taxpayer who is otherwise not required to file under SA (because their sole income is from employment for example), but whose adjusted net income exceeds £50,000 and they or their lower earning partner are receiving child benefit, is forced into self-assessment by the resulting liability to the HICBC and must register and file a return to pay the charge.
In July, the then Financial Secretary to the Treasury Victoria Atkins published a ministerial statement for potential inclusion in the next Finance Bill that promised to remove this requirement:
“The government wants to simplify the process for customers who become liable to the High Income Child Benefit Charge, particularly for those who currently need to register for self-assessment to pay the charge. The government will provide details in due course on how it will enable employed customers to pay through their tax code, without the need to register for self-assessment.”
No further information has been provided since and the HICBC did not feature the Autumn Statement, but when it happens this will be a very welcome change for the many taxpayers unfairly caught out by the unclear HICBC requirements.
Payroll complications
The changes to the SA criteria, when enacted, may simplify the job of the individual taxpayer, but bringing additional income into PAYE and the coding of the HICBC will serve up an extra headache for those working in payroll.
The tapering of the personal allowance is one such complexity that will be brought under the remit of PAYE for the current tax year. In 2023/24, taxpayers see their personal allowance reduced by £1 for every £2 above £100,000. PAYE currently cannot deal with the tapering of the personal allowance, but that will need to change for affected taxpayers no longer meeting the SA criteria from 2023/24 or 2024/25.
ICAEW response
In its response to HMRC’s discussion document, ICAEW highlighted the potential increased reliance on the PAYE system. In light of the extra complexity and risk of errors, the professional body recommended that HMRC consider ways to make it easier for taxpayers to check, understand and update their tax code.
“In the absence of simplification (or alongside it,) HMRC could encourage PAYE taxpayers to take an interest in their tax affairs and to provide updates on changes in circumstances by providing a straightforward digital service for reporting changes that affect their tax code. The services currently available in the personal tax account to update tax codes are not comprehensive or easy to use.”
Conclusion
As to why HMRC has decided to bring in these purported ‘simplifications’ to the SA criteria now, the response from the AccountingWEB community is resoundingly cynical, as summarised by onthespottax: “Currently, we have to look at most changes from HMRC through the lens of lack of staff/not being able to cope with workloads. It’s the only way these changes make sense…”
Taxpayers can use HMRC’s online tool to check if they need to send a self-assessment tax return for 2023/24. Anyone with employment income can, under ITEPA 2003, register to file for self-assessment voluntarily and many with more complex affairs or claims to make may decide that this is the simpler path to tread.
*5 December 2023: This article was amended to clarify the status and timings of the potential High Income Child Benefit Charge changes*
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