Self-assessment is the system HMRC uses to collect income tax. Various groups are required to sign up and file a self-assessment tax return each year, including sole traders and company directors.

However, self-assessment isn’t just for entrepreneurs. Many high earners taxed via PAYE are also required to register once they exceed the self-assessment threshold. Let’s dive in.

What’s the self-assessment threshold?

If you’re taxed via PAYE, you’re still required to file a self-assessment return if you earned more than the self-assessment threshold within a single tax year. This threshold was £100,000 for 2022/23 but it rose to £150,000 in 2023/24.

That means that if you earned between £100,000 and £150,000 last tax year, you’ll need to file a self-assessment return by midnight on 31 January 2024.

However, once you submit your tax return, HMRC will assess your finances against the new self-assessment threshold. If your income for 2022/23 is less than £150,000, you’ll automatically receive a SA251 exit letter in the post.

What are the other registration requirements?

In certain circumstances, you may still need to file a tax return in 2023/24, even if your annual income falls below the £150,000 threshold. So, who else needs to file a tax return?

Individuals are required to register and submit a self-assessment tax return if any of the following applied in the tax year:

• you were a partner in a business partnership
• you earned more than £1,000 as a self-employed sole trader
• you had to pay the high-income child benefit charge.

You may also need to sign up for self-assessment if you earned any other untaxed income such as rental income, foreign income, or state pension payments exceeding your personal allowance.

Trading and property allowances

If you’re a sole trader or a landlord, you may be able to save yourself the administrative burden of filing a self-assessment return by taking advantage of tax-free allowances.

Landlords with income from renting out land or property may be eligible for the £1,000 property allowance.

That means if you earn less than £1,000 per year from rental properties, you won’t usually need to inform HMRC or file a self-assessment tax return.

If you own property or land jointly with others, each owner is eligible for the £1,000 property allowance on their portion of the gross rental income.

Similarly, individuals with an annual gross trading income of £1,000 or less can legally fly under the radar with the trading allowance. If you qualify for this allowance, you won’t need to tell HMRC about your untaxed income.

The small print

In some cases, however, it may not be beneficial to use the allowances. For example, you cannot use the £1,000 trading allowance and claim tax relief on expenses for your sole trader business at the same time.

There are also some circumstances where you do not qualify for these allowances, including if you earn income from trade or property held in your own company or business partnership.

Tax doesn’t need to be taxing

Many high earners taxed via PAYE are required to register for self-assessment if they exceed the self-assessment threshold.

However, the rules surrounding self-assessment can be confusing. Unless you have an in-depth understanding of the tax system, it’s easy to overpay or underpay your income tax bill. Making a mistake on your return or missing a deadline can result in a hefty fine from HMRC, even if there’s no tax outstanding.

At Thomas Barrie, we handle your tax affairs with care and expertise. Our self-assessment accountants are here to help you manage your reporting obligations while minimising your liabilities, no matter how complex your finances.

Get in touch with us today for help navigating the self-assessment threshold for PAYE taxpayers.