Most employees don’t file tax returns. Under the Pay As You Earn (PAYE) system, employees’ earnings are taxed at source, so many assume they don’t need to do anything else to pay the right amount of tax. But higher and additional rate taxpayers might be missing out on valuable tax relief for some common outgoings.

What is a higher rate taxpayer?

In England, Wales & Northern Ireland, higher rate taxpayers are those with total income of more than £50,270 – that includes their salary and taxable benefits in kind, plus other taxable income such as bank interest, dividends, or rental income. Additional rate taxpayers are those with total income over £125,140.

What tax relief might be available?

Two common situations where higher and additional rate taxpayers might miss out on tax relief are if they make donations to registered charities under the Gift Aid scheme, or if they pay into certain types of pension schemes.

Whilst some employer pension schemes provide full tax relief upfront for contributions, higher and additional rate taxpayers who pay into a personal pension fund or who contribute to an employer pension scheme under ‘relief at source’ arrangements will normally be entitled to further tax relief. Your employees may need help checking which type of employer pension scheme they’re in.

Employees who aren’t currently in Self-Assessment shouldn’t need to file tax returns to claim tax relief on Gift Aid and qualifying pension contributions – if they contact HMRC, their tax codes can be adjusted to provide the relief.

We’ve produced a short video to help high earners understand these issues and more.

One other issue covered in the video is how employees earning over £100,000 will normally find their tax-free personal allowance restricted, and the importance of checking any adjustment made for this in their tax code.  Please share this video with your employees – it could help them pay the right amount of tax and claim tax relief they’re entitled to.

Scottish Taxpayers

The position for Scottish taxpayers is more complex, as different tax rates and bands apply in Scotland. As Scottish income tax rates increase faster than rates in the rest of the UK, tax relief for Gift Aid and pension contributions is available for Scottish taxpayers paying at anything above the 20% basic rate of tax – so earnings over £26,562.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.      

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