High Earners: Are You Required to Submit a Tax Return? Here’s What You Need to Know

If your income exceeded £200,000 in the 2021/22 tax year, it’s essential to be aware of new communication from HMRC. The tax authority is reaching out to high earners who may not have filed a self-assessment (SA) tax return for that year. Whether you’ve missed the deadline, haven’t registered for self-assessment, or are unsure of your obligations, HMRC’s letters serve as a timely reminder to review your tax situation.

At K2 Accountancy Group, we specialise in assisting high earners to navigate the complexities of tax compliance, including the self-assessment process. In this guide, we’ll break down what you need to know if you’ve received one of these letters and how we can help you stay compliant while avoiding penalties.

Who Is Receiving HMRC Letters?

HMRC is sending out three types of letters to individuals based on their self-assessment status:

1. Dormant SA Accounts: Individuals who have previously been registered for self-assessment but have not been active in recent years.
2. Missed Tax Return: Those who received a notice to submit a tax return for 2021/22 but failed to do so.
3. Not Registered for SA: High earners who are not currently in the self-assessment system but whose income indicates they should be.

If you fall into any of these categories, you may be required to take action to avoid late fees, interest on unpaid taxes, or penalties. The deadline to submit your tax return for the 2021/22 tax year, if required, is 29 September 2024.

Action Required for High Earners

HMRC expects high earners to check if they should have filed a tax return for the 2021/22 tax year. If your income exceeds the threshold for self-assessment, you must submit the return and pay any outstanding tax. Failing to act could result in HMRC charging interest on unpaid taxes, along with late payment and late filing penalties.

In some cases, penalties for late notification might also apply if you haven’t informed HMRC about a source of income that requires registration for self-assessment. HMRC offers an online tool to estimate any penalties you might face for late payment and filing. This can help you understand your financial obligations better and take corrective action.

If, after reviewing your situation, you believe you do not need to file a tax return, you must notify HMRC by 29 September 2024, using the contact information provided in their letter. Failing to do so could result in further action from HMRC, including reactivating your dormant SA account or issuing you a tax return to complete.

What Happens If You Don’t Respond?

If you don’t respond to HMRC’s letter by the deadline, the tax authority could reactivate your SA account (if you received letter one) or send you a notice to file a tax return (if you received letter three). It’s important to note that these letters are not formal compliance checks. However, HMRC may choose to initiate a compliance check in the future, and penalties could apply if errors are uncovered.

Proactively informing HMRC of any discrepancies in your tax filings can reduce potential penalties if a compliance check is carried out. Being transparent about your income and tax obligations helps avoid costly penalties and ensures that you stay on the right side of the law.

HMRC’s Self-Assessment Criteria for 2021/22

HMRC provides several criteria to determine if a taxpayer is required to submit a self-assessment return. High earners should consider whether any of the following applied during the 2021/22 tax year:

• Income exceeding £100,000: Even if you are on PAYE, earning over £100,000 requires you to file a tax return.
• Property Income: If you earned more than £7,500 from renting out a room or £3,750 if the property was jointly owned, you may need to file.
• Self-employment Income: If your earnings from self-employment exceeded the £1,000 trading allowance.
• Capital Gains: Disposing of shares, property, or other assets may trigger the need for a tax return.
• Dividends and Savings: If your investment income (excluding ISAs) was over £10,000.
• Tax Relief on Donations or Pension Contributions: Claiming tax relief could mean you need to file.
• High-Income Child Benefit Charge (HICBC): If you or your partner earned more than £50,000 and claimed child benefit, this charge may apply.
• Student Loan Repayments: If you made student loan repayments outside of PAYE.

Important Changes for Future Tax Years

For the 2023/24 tax year, the income threshold for self-assessment was increased from £100,000 to £150,000. Starting in the 2024/25 tax year, the threshold has been removed entirely. High earners should take note of these changes to understand their future tax obligations.

How K2 Accountancy Group Can Help High Earners

Navigating the self-assessment process can be challenging, especially for high earners with multiple income sources or complex tax situations. At K2 Accountancy Group, we offer personalised tax advice and services tailored to meet the needs of high earners. Our team of experienced professionals can help you:

• Determine if you need to submit a self-assessment tax return.
• Ensure accurate reporting of all income sources, including PAYE, BIK, and capital gains.
• Minimise penalties by filing your tax return correctly and on time.
• Manage communication with HMRC and respond to any letters or requests.
• Stay up to date with changing tax regulations and thresholds.

Don’t let the complexities of self-assessment catch you off guard. Contact K2 Accountancy Group today to ensure you meet your tax obligations and avoid unnecessary penalties.

High earners should pay close attention to their tax obligations, especially when receiving communication from HMRC regarding self-assessment. By understanding whether you need to file a tax return and taking the appropriate action, you can avoid costly penalties and interest charges. K2 Accountancy Group is here to help you every step of the way, ensuring that your tax affairs are in order and compliant with the latest regulations.

Please note, all information in this article should be taken as ‘general’ and not official advise from the K2 accountancy Group or any of its team. Please contact us directly for advice on your specific circumstances.