LINKS MARKED * ARE AFFILIATE LINKS.

If you’re a high earner then you might be aware by now that HMRC made some major changes in recent years in regards to tax returns. These changes might affect whether you still need to file a tax return as a high earner. 

This article will help high earners to work out whether they need to file a tax return or not.

Limited time partner offer: If you feel you need help filing your tax return or some advice on whether your income streams are taxable or not, then an online tax return filing and advice company like Taxfix might be worth looking into. They offer a tax return filing service but also a separate tax advice service, where you can book a 1-on-1 consultation with a tax advisor. You can check out our full Taxfix review here. 

Sign up via this link* to receive 20% off Taxfix tax returns (discount automatically applied at checkout)

How Things Used to Work – Prior to April 2023

As a high earner in the UK, it used to be the case that you had to file a tax return if you earned over £100,000. This guidance was changed, however, for the 23/24 tax year.

How Things Work Now – 2023/24

For the 2023/24 tax year this threshold was raised to £150,000. 

So if you earned more than £150,000 through PAYE in the 2023-24 tax year, then you’ll need to file a tax return. This is the case regardless of whether you have other income streams or not. 

Earned less than £150,000 but have self employed income

If you earned self-employed income on top of your earned income, then you will more than likely need to submit a tax return. This is true even if your income totalled less than £150,000. It’s especially true if you had more than £1000 in self employed revenue.

Earned less than £150,000 but have other income

If you earned less than £150,000 but have other sources of income – such as income from investment dividends or interest on savings – then you’ll need to check whether these income streams are high enough to require that you file a tax return.

For the 2023-24 tax year you have until January 31st 2025 to file your tax return with HMRC. If you miss the deadline then you might be liable to pay a fine. You may also find that you have some tax to pay due to a capital gain for example, or if you earned some money from self employment. If you don’t pay all of your due tax by this date too, then you may be charged interest. 

Why do I need to file a tax return as a high earner?

One of the main reasons HMRC ask you to file a tax return as a high earner is that your high earnings will reduce the amount you can earn before you start to pay tax. This is known as your tax free allowance and in the 2023/24 tax year this figure stood at £12,570. As you start to earn over £100,000 in the UK, you start to lose your tax free allowance. For every £2 that you earn over £100k, you actually lose £1 of your tax free allowance. Once you reach £125,140 in earnings, your allowance disappears completely. 

The 60% Tax Trap

You also start to pay 60% tax on a portion of your income. This is commonly referred to as the 60% tax trap. You won’t find any mention of a 60% tax rate on the HMRC threshold’s page. That’s because it’s not really an official rate. You just effectively begin to pay 60% tax on any earnings between £100,000 and £125,140 due to the tapering on your tax free allowance. Not only are you charged the higher tax band rate of 40% on these earnings, you also lose your allowance. This means you pay an extra 20% tax on those earnings too.  

Ways to Avoid the 60% Tax Trap

There are some perfectly legitimate ways of avoiding this tax trap. One is to donate to charity, to reduce your taxable income to under £100,000, 

The other frequently used way is to contribute more to your pension pot. As you put more money into your pension each year, you reduce your net adjusted income. This can allow you to recover some of your tax free allowance. You might even be able to recover all of your allowance and avoid the 60% tax trap completely if you bring your net adjusted earnings back down below £100,000. 

If you don’t yet have a pension, or perhaps you do but want to set up a private one or consolidate your existing pensions, then you can easily do this via reputable companies like Hargreaves Lansdown* or Moneyfarm*.   

The option of increasing your pension contributions to build your pot for later in life will obviously be the best and most attractive option to most people. There are limits to how much you can contribute to your pension and still receive tax relief, though. So getting expert financial advice could be a good idea here. 

If you need expert financial advice on utilising pension contributions or charity donations to bring down your net adjusted income, then you can easily find a local financial or pension advisor via a website like Unbiased*.

Still Unsure?

If you still have doubts about whether you need to file a tax return as a high earner or not, then you can also try out this handy tool on the .gov.uk website. This should give you a little help in deciding whether you need to file a tax return in the 2023/24 tax year or not.

Do remember it is YOUR responsibility to find out whether you need to file a tax return. HMRC are not required to reach out to you to ask you to file one.

A note to our readers – If you sign up for a service via any of the links in this post, then we will receive a small commission at no cost to you. In fact, you might even save money by utilising exclusive discounts or offers we have negotiated with these firms. This commission helps us to keep producing helpful content on Money Bulldog for you to enjoy free of charge.