Hi

When I worked at Deloittes in Liverpool in the 1990s I used to appear on the BBC Radio Merseyside breakfast show to read and comment on the day’s business news. 

On one occasion, when the government had just announced that self-assessment of income tax returns was to be introduced (instead of HMRC calculating a person’s tax liability), the host introduced me by saying “Well Noel, the government has just simplified tax return filing – is that the end for accountants?”

Fortunately I was able to reply “No, we love it when the government simplifies tax – we get much busier.”

They’ve been at it again recently with three “simplifications” to self-assessment.

The first announcement nt came in June 2023 when HMRC bumped the threshold above which individuals with employment income only should file for self-assessment from £100,000 to £150,000. This received mixed reviews, with some critics concerned the move might have the opposite effect of over-complicating matters for certain taxpayers as amounts such as personal pension payments and gift aid donations will need to be brought into the Pay As You Earn (PAYE) coding. Some taxpayers risk overpaying tax if refunds and reliefs that would have been claimed on the self-assessment return are not correctly processed through PAYE.

Nevertheless, ploughing on with the "simplification" strategy the Chancellor announced in the Autumn Statement that from the 2024/25 tax year, the £150,000 threshold will be removed entirely and all individuals with employment as their only substantial source of income will be de-registered from self-assessment and taxed via PAYE.

There are numerous circumstances where taxpayers will still need to register and file for self-assessment regardless. This includes where an individual has self-employment income over £1,000; other untaxed income over £2,500 that cannot be taxed via the PAYE system; employment expenses in excess of £2,500; or income from savings and investments over £10,000. Still plenty of work for accountants!

The third change to the self-assessment criteria promises to remove the notorious High Income Child Benefit Charge (HICBC). Currently, a taxpayer who is otherwise not required to file under self-assessment (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 in order 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.

The changes to the self-assessment 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 in accounting firms working in payroll preparation.

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 self-assessment criteria from 2023/24 or 2024/25.

In its response to HMRC's discussion document, the Institute of Chartered Accountants 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 own 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 simple and 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."

As to why HMRC has decided to bring in these purported “simplifications” to the self-assessment criteria now one accountant said: "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.

Or, of course, you can just appoint an accountant to do it for you.

Noel Guilford