Summary
HMRC should make it easier for individuals who want to file tax returns to remain in the self-assessment (SA) system.
Currently, taxpayers who don’t meet HMRC’s requirements to file tax returns are automatically removed from SA, leading to complications for some and the risk of non-compliance. We would like HMRC to simplify the process for taxpayers who want to file a tax return each year if that is the best way for them to manage their affairs. HMRC should make the process of enabling this choice available to agents to use on behalf of their clients, as well as to unrepresented taxpayers.
Detail
In recent years, HMRC has enacted a number of measures to remove people from the obligation of filing an annual tax return:
- Since 5 April 2025, employees with PAYE income only no longer need to file a tax return. (Previously those with high income were required to file.)
- Savers and investors only need to be in SA if their investment income exceeds £10,000.
- In future, only those with untaxed income from side hustles or property rental of more than £3,000 will need to report this income via self-assessment.
Taxpayers who have previously filed SA returns commonly find they are automatically removed from SA by HMRC if they fall into one of the first two categories above. This is despite the fact they may still have tax to pay. These taxpayers are then pushed into HMRC’s automated processes such as a reconciliation of their tax position after the end of the year, and simple assessment where HMRC uses the information it receives from third parties to calculate the tax due. As HMRC does not always receive correct and complete information about a taxpayer’s affairs, such calculations are not necessarily accurate and are very time consuming to for the taxpayer to amend.
Remaining in SA is often the simplest and most cost-effective way for some taxpayers to keep their affairs up to date and ensure they have reported all their income and claimed appropriate reliefs. Those with agents appreciate the agent’s input to an annual review of their tax affairs as part of filing an SA return, to ensure they remain compliant.
Who might want to stay within SA or come into SA:
- Those with untaxed income, such as:
- taxable interest or dividend income under HMRC’s criteria for entry into SA of £10,000.
- property income in excess of the £1,000 property allowance but under HMRC’s criteria for entry into SA of £2,500 net or £10,000 gross.
- any trading income in excess of the £1,000 trading allowance but under HMRC’s criteria for entry into SA of £2,500 gross.
- Individuals with varying patterns of income and gains, who would prefer to stay in SA rather than move in and out of the system.
- Those who claim tax reliefs frequently, but not necessarily annually, would benefit from remaining in SA – for instance those making periodic pension contributions.
- Individuals with income close to/above the £100,000 threshold at which the tax-free Personal Allowance starts to be reduced. Equally, those whose income fluctuates above/below that level from year to year. Similar issues exist around the £60,000 threshold for the high income child benefit charge.
- Individuals who would prefer to pay their tax in a single lump sum, rather than via adjustments to their PAYE code.
- Anyone with more than one complexity (e.g. a combination of two or more from taxable savings income, dividend income, side hustle income, or pension contributions or job related expenses) is likely to find a tax return easier than engaging with multiple separate HMRC services.
Potential Solutions
We would like HMRC to make it easier for taxpayers to remain in SA even where they are not strictly obliged to by HMRC’s rules. If HMRC continue to remove taxpayers from SA, there should be a facility for the taxpayer to quickly and easily re-enter the SA system (and, where relevant, for their agent to do so on their behalf) so they can continue filing tax returns.
Related links
Self assessment thresholds: If it ain’t broke, don’t fix it? | AccountingWEB