The Government’s plan to take people with PAYE-linked earnings of between £100,000 and £150,000 per annum and no other substantive sources of income, out of the Self-Assessment Tax Return system will result in many taxpayers in this bracket overpaying taxes say leading tax and advisory firm Blick Rothenberg.
Robert Salter, a tax technical specialist with the firm said: “Whilst many people who only have employment income and earn between £100k – £150k per annum will welcome the fact that the Government is planning to remove their self-assessment filing obligation for the 2023/24 tax year (and later years), it is always important to ‘dig into tax changes’ and really understand the implications of such developments.”
He added: “The reality is that HMRC have been underfunded (and hence understaffed) for a number of years. The move to take people out of self-assessment appears purely designed to help HMRC manage their workload and is nothing to do with ‘tax simplification’ or helping ensure that ‘taxpayers only pay the correct amount of tax’.”
Robert added: “The fact that the personal tax allowance – that is the amount of tax-free income one can receive in a tax year – is ‘written off’ on a gradual basis for people who earn between £100k – and £125k per annum, means that the tax affairs of people in this income bracket can be more complicated than the situation for many people earning much higher salaries. Moreover, people who lose their personal allowance are paying an effective tax rate of 60% on their income between £100k and £125k per annum.”
Robert added: “Whilst HMRC should – in theory – be able to adjust people’s tax affairs for various types of deduction and allowance (e.g., gift aid contributions, personal pension inputs, professional subscriptions, and business expenses), with a tax return, the reality is that HMRC consistently fails to automatically adjust a taxpayer’s tax affairs for such matters. This is even though it should get some of the above data automatically from 3rd parties.”
“By taking employees in the £100k – £150k threshold out of self-assessment, there is a real risk that people in this range will end up paying too much tax and not getting refunds, to which they are genuinely entitled.”
Robert said: “It is worth remembering that even a relatively small ‘failure’ on the part of HMRC would – especially for those in the effective 60% tax rate – could cost them a significant amount of money. For example, if HMRC simply fails to give a taxpayer relief for a professional subscription of £400, that results in a 60% taxpayer having an excess tax charge of £250.”
Robert added: “The tax refunds available to some taxpayers in this earnings bracket will be considerably higher than simply £250.”
He added: “If the Government is serious about ensuring people only pay the right amount of tax, the Government needs to withdraw this change. Otherwise, in practice, it is just another sign that the Government is looking to increase the taxes actually paid by many taxpayers by stealth.”
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