Earlier this year, HMRC reached out to wealthy taxpayers who had not filed tax returns for the 2020/21 and/or 2021/22 tax years. The letters were sent to individuals who had submitted returns for 2020/21 and 2022/23 but not for 2021/22, or for those who had filed returns for 2019/20 and 2022/23 but not for 2020/21 or 2021/22. These taxpayers had previously been notified to complete a Self Assessment tax return.
The letter requested that any outstanding returns for the specified years be submitted by 12 July 2024. If the returns are not filed by this deadline, HMRC will estimate the amount of tax due based on available information and issue a determination accordingly. Additionally, late filing penalties will be applied, although taxpayers can appeal these penalties if they have a reasonable excuse for the delay.
If a taxpayer receives such a letter but believes a return is unnecessary, they should promptly contact HMRC at 03000 516640 or via email at response2@hmrc.gov.uk rather than disregarding the notice.
When Is a Tax Return Required?
For taxpayers whose income is fully managed through the PAYE system, it is easy to assume that no tax return is necessary since the owed tax should already be accounted for. However, HMRC has traditionally required wealthy individuals to file tax returns, even when taxed under PAYE. This is likely due to the increased likelihood that these individuals have savings or investment income subject to tax.
For the 2022/23 and earlier tax years, PAYE taxpayers with an income of £100,000 or more were required to file a tax return, even if they had no additional income. This threshold has been raised to £150,000 for the 2023/24 tax year and will be removed entirely starting from the 2024/25 tax year.
Nonetheless, wealthy taxpayers within PAYE will still need to file a return if they have other income sources to declare. This includes situations where they were self-employed with trading income exceeding £1,000, were a partner in a partnership, fell under the High Income Child Benefit Charge, had chargeable gains to report, had rental income exceeding £1,000, or received taxable foreign income.
A tax return may also be necessary if the taxpayer has savings and investment income to report. Recent changes could mean that PAYE taxpayers now have a tax liability on their savings or dividend income for the first time.
For example, the reduction in the additional rate threshold to £125,140 for 2023/24 onward means that taxpayers earning between £125,140 and £150,000 lose their personal savings allowance, which is only available to higher and basic rate taxpayers. Even if a taxpayer remains in the higher rate band, rising interest rates might push their savings interest above the personal savings allowance. Similarly, the reduction in the dividend allowance to £1,000 for 2023/24 and £500 for 2024/25 may result in tax liabilities on dividends for the first time.
Wealthy PAYE taxpayers should review their circumstances to determine if a tax return is required. If they receive a notice to file but believe it unnecessary, they should contact HMRC for clarification.
