Changes to your tax treatment, once you are earning more than £100k

Crossing the £100,000 income threshold is a proud milestone for many professionals—whether you’re a healthcare expert, tradesman, eCommerce entrepreneur, or startup founder. But with great earnings come greater responsibilities, particularly concerning your tax treatment. At this income level, you’ll encounter new tax rules, such as the tapering of your personal allowance, the need for a Self-Assessment tax return, and adjustments to your National Insurance and pension contributions. To stay compliant with HMRC regulations while maximising your finances, it’s crucial to understand and plan for these changes. Let's explore the key areas you need to focus on. Why does your personal allowance reduce as a high-income earner? One major change for earners above £100,000 is the reduction of your personal allowance—a tax-free amount applied to your income. For every £2 earned above this threshold, you lose £1 of your personal allowance. By the time your income reaches £125,140, your personal allowance is completely eliminated. This creates a hidden ""effective tax rate"" of 60% on income between £100,000 and £125,140. For example, let's say you’re a healthcare professional making £115,000 a year. Without proactive planning, you may be taxed more heavily than expected. To reclaim some benefits, consider options like increasing your pension contributions, which allow you to lower your taxable income. Additionally, you may be affected by the High-Income Child Benefit Charge. If you or your partner receive Child Benefit and your income exceeds £50,000, you may need to repay some (or all) of it. This applies even if your income is entirely through PAYE, making awareness and early action key. Do you need to submit a Self-Assessment tax return? Yes. If your income exceeds £100,000, you are required to file a Self-Assessment tax return (SA100) annually, even if you’ve previously relied on PAYE for tax compliance. This applies to employees, sole traders, directors, and anyone with additional income sources. A Self-Assessment tax return ensures that all your income streams, including rental income, dividends, and profits from secondary ventures, are accurately reported. Neglecting this responsibility can lead to penalties from HMRC, so it's essential to submit your return on time. If the process feels overwhelming, consider working with qualified accountants or online accountants who specialise in simplifying Self-Assessments. Tools like accounting software aligned with HMRC’s Making Tax Digital initiative can also ease the process. How does earning over £100,000 affect your National Insurance and pension contributions? Higher earnings also affect your National Insurance contributions (NIC). If you’re self-employed or a sole trader, you’ll notice increasing NIC obligations as your income rises. Proper planning is needed to avoid unexpected liabilities. On the other hand, pension contributions offer a strategic advantage for high-income earners. By increasing your contributions, you effectively reduce your taxable income, which can help reclaim some of your personal allowance lost due to higher earnings. For instance, if you contribute £10,000 to a pension, your adjusted income drops to £105,000—reducing the portion of your personal allowance lost. It’s a win-win strategy, providing future savings while reducing tax liability today. Professionals such as tradesmen, startup directors, and healthcare workers can significantly benefit from working with a chartered accountant or trusted financial advisor to optimise pension strategies. Why is Making Tax Digital important for high earners? Making Tax Digital (MTD) is transforming tax compliance in the UK, especially for individuals and businesses managing multiple income streams. By shifting to digital tax management tools, you can ensure all your records are accurate, up-to-date, and readily accessible when filing your Self-Assessment tax return. MTD-compliant software is particularly helpful if you have rental income, investments, or PAYE income alongside freelance or directorship earnings. With penalties for errors increasing under HMRC surveillance, these tools can safeguard you against costly mistakes. Many virtual accountants excel in harnessing MTD-friendly platforms to streamline clients’ tax requirements. By choosing experienced experts, high earners can reduce the stress of compliance, optimise tax calculations, and focus on scaling their careers or businesses. How can professionals manage tax complexities proactively? Ensuring tax compliance and financial efficiency as a high-income earner doesn’t have to be overwhelming. Whether you’re a mortgage advisor, PAYE employee, or tradesman, there are actionable steps you can take today to prepare for tax season. Work with a Reliable Accountant: Partnering with qualified accountants who understand complex tax scenarios for professionals in the UK can simplify processes like Self-Assessment filing and payroll compliance. Look for reputable firms with expertise in serving high earners. Explore Salary Sacrifice Options: Certain employers offer schemes that allow you to “sacrifice” part of your salary for benefits like additional pension contributions or healthcare, reducing taxable income. Keep Track of Allowable Expenses: From work-related travel to home office equipment, recording deductible expenses throughout the year can reduce your overall tax liability. Plan for the High-Income Child Benefit Charge: If applicable, calculate how changes to your income affect repayments and factor this into budgets. Adopt MTD Software Early: Transition to digital tools now, ensuring your records are accurate and easily filed come deadline day. How can Virtue Accountants help you? Navigating tax changes as a high-income earner isn’t just about ticking HMRC’s boxes—it’s about empowering professionals like you to make informed financial decisions that drive long-term success. At Virtue Accountants, our dedicated team of chartered accountants offers tailored strategies for tradesmen, locums, directors, and other professionals earning over £100,000. From payroll management to optimising Self-Assessment filings, we simplify your tax responsibilities so you can focus on what matters most. Interested in reducing stress while staying compliant with HMRC regulations? Get in touch to explore how our online accounting services can transform the way you manage your finances. Take Control of Your Tax Responsibilities Today Successfully managing your tax obligations when earning over £100,000 requires proactive planning and expert advice. By understanding how changes like the tapering of your personal allowance, Self-Assessment requirements, and MTD compliance impact you, you can minimise liabilities and safeguard your finances. Whether you’re a healthcare consultant, startup founder, or PAYE employee, partnering with Virtue Accountants ensures you remain compliant, efficient, and stress-free. Contact us today to make your transition into this new tax bracket seamless and effective.