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If you are earning over £100,000 a year, you must file a self assessment tax return with HMRC. If you don’t usually send a tax return, you need to register by 5th October following the tax year you had the income. We can help you avoid any tax return penalties and handle everything for you.
If you're a "high earner" making over £100,000 per year, HMRC will want to take a closer look at your money. You may well be in a more complex position than most, with more than one source of income to consider. Getting it all properly accounted for means filing a yearly Self Assessment tax return.
Another reason the taxman will ask high earners for a tax return is because it can affect your tax-free Personal Allowance. It comes down what HMRC calls to your "adjusted net income". This figure doesn't take your Personal Allowance into account, but does include a few kinds of tax relief. The basic idea is that you lose £1 of your tax-free Personal Allowance for every £2 over £100,000 your adjusted net income goes. This can get complicated quickly, of course - which is why HMRC needs a tax return to sort it all out.
No, you won't get taxed twice on the same income. However, if you don't know your way around the Self Assessment system, it's easy to get tripped up. Self Assessment comes with a lot of rules and tax return deadlines. You need to register for it, and will quickly stack up tax return penalties if you get things wrong.
Even if you avoid the major Self Assessment pitfalls, it's still easy to end up paying too much tax. Depending on your circumstances, you might have allowable expenses that count against the income you're taxed on. A lot of people don't realise what they can claim for, or - even worse - try to claim too much.
HMRC is going to want a full, detailed overview of the money you've got coming in and going out. That includes information on all your income sources (employment, interest, pensions, share dividends, etc.). You'll also be expected to declare any employment benefits you're getting. If you've got allowable expenses, the taxman's going to want to know about those too. It can be a lot to get to grips with if you're not used to it, and it's easy to drop the ball. Talk to RIFT if you need help or advice.
Absolutely! RIFT are the UK's leading tax experts, and our specialist Self Assessment tax return service is perfect for people with complicated tax situations. We can take care of the whole thing for you, working out your total taxable income and filing your returns. Our seasoned tax experts will save you money and keep you on the right side of HMRC. Get in touch to see how we can help.
When you earn over £100,000 per year, your tax situation starts to look very different from most people’s. For one thing, even if all your money’s taxed through the PAYE system, you’ll have to start sending yearly Self Assessment tax returns to HMRC. On top of that, you’ll also find you aren’t getting the same kind of tax-free Personal Tax Allowance as lower earners.
Here’s how that works. Most taxpayers can earn up to a certain threshold before paying any Income Tax. For the 2021-22 tax year, for instance, you can earn up to £12,570 tax-free in a year. However, every £2 you earn over £100,000 in a year will cost you £1 from your Personal Allowance, meaning you’re paying tax on more of your income than before. By the time your income hits £125,140, you’ve lost your entire tax-free Personal Allowance.
The top rate of tax in the UK is 45%, which is only paid by people earning over £150,000 (as of 2021/22). Despite this, you might have heard people talking about the “60% tax rate”. Basically, this figure comes from the chipping away of your Personal Allowance when you earn over £100,000. For instance, earning £1,000 over that threshold not only brings a tax charge of 40% (£400), but also knocks £500 off your Personal Allowance, meaning you pay another £200 in tax. All told, you’ve paid out £600 more tax for earning that £1,000 – an effective tax rate of 60%.
There are ways of bringing down the tax you owe when you’re in this situation, like donating to charity or boosting your pension contributions. See our article, “How Earning £100K Affects your Personal Allowance” for more information.
23rd October 2024
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