Self Assessment earnings over £100,000

During the 2022/23 tax year my earnings just stepped over £100,000 by £144. As per guidance I submitted a tax return. All of my pay is through the PAYE system. I was expecting a tax bill of around £29 as my understanding is that I lose £1 of my tax free allowance for every £2 earned over £100k. However, the tax bill is £58 which is a straight 40% of £144. I called HMRC and they said that because I earned £128 interest on savings my tax relief is reduced by this amount also and so consequently the £144 is taxed at 40%. Is this correct as I thought I could earn up to £500 tax free interest on savings. Incidentally, the numbers still don't quite add up based on this. If what I was told is correct then is it true that in this situation effectively ANY interest on savings is taxed as it still reduces your tax free allowance?

@JaseC You've misunderstood how interest is taxed. Outside of a (tax exempt) ISA there is no separate tax free allowance for interest. But as a higher rate payer the first £500 is taxed at 0% (the savings nil rate band, often referred to as they Personal Savings Allowance). However that £500 is still taxable income and forms part of your adjusted net income. And it's adjusted net income which determines your Personal Allowance. So that £128 will be taxed at 0% but in turn will mean you lose an additional £64 in Personal Allowance.

The savings income is still counted in the tax band even though you pay no tax on it, so it pushes more income into the higher bands.

Thanks for the replies. So as I said in my final sentence. I am effectively taxed on ANY interest made on savings as, in my case, it reduces my tax free allowance. The numbers still don't quite add up though but at least it is a little closer.

Hi
The bill would be £58 as you have already used up all of the 20% tax band.
The additional income would fall into the 40% threshold.

OK. So at the risk of of going round in circles on this, and for my future understanding, can I just get this straight. Up to £100,000 all my income is through the PAYE system and taxed correctly. However, if you earn over £100,000 the system can't allow for the fact you then lose £1 of tax free allowance (£12570 in this case) every £2 of income over £100,000. So, setting aside the interest earned on savings, if income was £100,144; all of which has been taxed via the PAYE system, the £144 would incur a loss of £72 of tax free income which then taxed at 40% would be £28.80. Which is an effective rate of 20% on the £144. Now bring in the £128 of interest earned on savings, theoretically tax free but not really, and that then reduces tax free allowance by a further £64. Surely this would then mean a further £25.60 in tax owed. Which when added to the previous £28.80 actually means £54.40.... Is all of this correct or have I misunderstood something?

Hi JaseC,
Yes that is correct.
Thank you, 
 

I have recently been sent £100 penalty for late filing of self-assessment. My taxes have always been deducted through PAYE, so I was unsure why I got the penalty. After several minutes on Google, I believe this is as a result of my earning >£100k during the last tax year. Is it my organisation's responsibility to make me aware of this since prior to now, I've always been on PAYE deduction or how am I expected to become aware of this requirement? Is there a guidance I can take to my organisation for not informing me? Any help will be useful. Thanks!

I received the same penalty, and upon phoning HMRC was advised to pay the fine before the deadline then appeal to the postal address on the letter. They state that there’s sufficient guidance on your P60 (the *comment), to inform you of this

Hi Nicky Bee,

If your income was over £100K for the 2022 to 2023 tax year then that is a Self Assessment criteria and HMRC would have sent you a notice to file the tax return. It is not your employers responsibilty to inform you if you need to complete a Self Assessment.

Once you file the outstanding Self Assessment you can then appeal the penalty charge. You can check Self Assessment criteria here:

Check if you need to send a Self Assessment tax return

Thank you.

Thanks Yaantk and HMRC Admin 19 for the responses. I don't recall seeing any request to file a notice to file tax returns, but I'll proceed as advised. Kind regards, Nikky Bee  .

Feedback to reply .

Hi I have earned more than £100k and made an additional pension contribution (Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider) which I expected to reduce my taxable income on my Self Assessment tax return but it appears that this was only added onto the basic rate limit it hasn't reduced the impact on my Reduced Personal Allowance? So if for example I earned £115k (taxable income) and paid a £5k additional pension contribution as above I expected the the Reduced Personal Allowance to be £7570 (i.e. £12570 minus £10000*0.5) rather than the £5070 it would have been (i.e. £12570 minus £15000*0.5). Have I understood correctly?

Hi Mercedes,
The pension contributions would be taken into account for your adjusted net income:
Personal Allowances: adjusted net income
If you think the calculation is inocrrect then we would need to access your record to review.
You can contact HMRC here:
Income Tax: general enquiries
Thank you. 

I have earned over £100k the last tax year. It was only through a colleague that I learnt of the need to self assess and find this thread. Having followed the advice to check the criteria using https://www.gov.uk/check-if-you-need-tax-return… it tells me I do not need to self-assess (specifying only earnings over £150k do). Only through reading the comments here did I register anyway and check the box for over £100k. Can I suggest the criteria check page is updated to include £100k earners please?

Thanks have checked it out and think the calculation works out OK for the tax it is just how it shows on the return compared to what I was expecting to see.

Feedback .

Hi cephalopodsquid,
For the 2023/24 tax year the threshold changed from £100K to £150K for Self Assessment criteria.
You can check if you meet the criteria here:
Check if you need to send a Self Assessment tax return
Thank you. 

Hi All, just wanted to check if in 2024/25 tax year the rules are changing so a PAYE earner with an annual income over £150K doesn't need to submit a self-assessment any more? Found this info on line but not on HMRC pages. Would be grateful for a confirmation. Thank you!

[Display name amended - Admin]

 

Hi Donata,
You only need to submit a Self Assessment return for PAYE income if it exceeds £150,000.
You can read more here:
 Income Tax rates and Personal Allowances
Thank you. 

Despite the criteria threshold changing, I completed a self-assessment for 2023-24 anyway to be on the safe side. I did not earn over £150k and yet the calculation shows that I now owe over £1000 income tax as the £1 personal allowance reduction for every £2 over £100k still applies. Why are you telling people not to self-assess until £150k? Surely we will all be under-paying and eventually have a large tax bill?

Hi,

If your earnings were under £150000 for 2023 to 2024, then the record would be reviewed using the details on your PAYE records.

As we would need to access your record to check why there is a balance due from your Self Assessment you will need to conatct our Self Assessment team.

Self Assessment: general enquiries

If your income is over £10000 you should check that the estimated pay shown on your PAYE records is correct to ensure the correct code is in operation. You can check this on your personal tax accoun:

Personal tax account: sign in or set up

Thank you.