Tax Year 2023/24: Changes to Self Assessment Threshold – Potential Impact on Taxpayers

In an update released on 12th June 2023, HMRC announced a significant change to the self assessment threshold for taxpayers whose income is taxed under PAYE. Starting from the tax year 2023/24, the threshold will increase from £100,000 to £150,000. While this change aims to streamline the process and reduce administrative burdens, it could potentially lead to higher tax payments for those affected.

For the current tax year 2022/23, the self assessment threshold for PAYE taxpayers remains at £100,000, and they will receive the usual notification to file a tax return. However, upon submission of their 2022/23 tax return, taxpayers will be assessed against the new £150,000 threshold. If their tax return reveals income between £100,000 and £150,000, solely taxed through PAYE, and they have no other significant sources of income, they will receive an SA251 exit letter.

Nevertheless, taxpayers falling within this category will still be required to submit a tax return for the tax year 2023/24 if they receive untaxed income, are a partner in a business partnership, need to pay the High Income Child Benefit Charge (HICBC), or have self-employment income exceeding £1,000.

An HMRC spokesperson clarified that this change aims to reduce administrative burdens, lower costs, and enhance the efficiency of the self assessment process. However, it’s important to note that this change does not alter the tax liability of those affected, as income tax will continue to be collected through the PAYE system.

HMRC attributes the increase in the threshold to improvements in its IT systems, enabling it to raise the limit. Nonetheless, taxpayers must still file a self assessment tax return if they possess other untaxed income that cannot be adjusted through PAYE coding.

Concerns of Overpaying Taxes

Critics have expressed concerns that removing individuals with PAYE earnings below £150,000 from the self assessment system could result in many taxpayers overpaying their taxes. One AccountingWEB reader, kevinringer, mentioned attending a meeting with HMRC where it was explained that these taxpayers would still be required to inform HMRC of any tax payable, but not through the self assessment system. This process would involve contacting HMRC via phone or letter.

Robert Salter, a tax technical specialist at Blick Rothenberg, noted that the threshold increase may complicate tax affairs for affected PAYE taxpayers compared to those earning much higher salaries. Additionally, individuals losing their personal allowance would face an effective tax rate of 60% on their income between £100,000 and £125,140 per annum.

Salter further highlighted that while HMRC theoretically has the ability to adjust taxpayers’ affairs for various deductions and allowances (such as gift aid donations, personal pension contributions, professional subscriptions, and business expenses) through a tax return, they often fail to do so automatically. This occurs despite the availability of relevant data from third parties. Consequently, by removing employees in the £100,000-£150,000 threshold from self assessment, there is a genuine risk of individuals paying excessive taxes and not receiving entitled refunds.

Implications and Criticisms

Questions have been raised about the legality of this change. Some have argued that HMRC can only modify its own threshold for issuing a notice to file, rather than changing the threshold for completing a return, as there is no such threshold defined in law.

Furthermore, users have highlighted potential repercussions stemming from this change. Concerns have been raised about relief at source (RAS) pension contributors potentially missing out on higher rate relief, as well as the possibility of losing a significant pool of potential

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