HMRC Scraps Tax Returns For Thousands: New Rule Changes Explained

Henrik Larsen

4 min read

Post on May 20, 2025

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Who is Affected by the HMRC Tax Return Changes?

HMRC's simplification of the tax return process affects a large number of individuals. Understanding who benefits from these changes is crucial.

Automatic Updates for Employed Individuals:

Millions of employed individuals will breathe a sigh of relief. They will no longer need to file a self-assessment tax return. HMRC will receive their income and tax information directly from employers, significantly simplifying the tax process. This automatic update system streamlines the process for many.

• Employees with only employment income: If your sole income comes from employment, you're likely exempt.
• Individuals receiving only standard tax reliefs: Those claiming standard tax reliefs like personal allowance won't need to file.
• Those whose income is fully reported by their employers through PAYE: PAYE (Pay As You Earn) systems will feed directly into HMRC, eliminating the need for manual returns for many individuals.

Specific Income Types Excluded:

However, the changes don't apply to everyone. Several income streams still require you to file a self-assessment HMRC tax return. This means some individuals will still need to complete the usual process.

• Self-employment income: If you're self-employed, you will still need to file a tax return.
• Rental income: Income from property rentals remains subject to self-assessment.
• Dividend income exceeding certain thresholds: High dividend earners will need to declare their income.
• Capital gains: Profits from the sale of assets (like stocks or property) must be reported.
• Foreign income: Income earned outside the UK needs to be declared.
• Tax relief claims beyond standard allowances: If you're claiming tax relief beyond the standard allowances, you'll need to file a return.

Understanding the New HMRC Tax System

These changes to HMRC tax returns are part of a larger initiative.

Making Tax Digital (MTD) and its Impact:

The shift towards automatic tax calculations is a key component of HMRC's Making Tax Digital (MTD) initiative. This wide-ranging program aims to modernize the tax system, creating several benefits:

• Improved accuracy through data sharing: Direct data transfer reduces errors associated with manual entry.
• Reduced administrative burden for compliant taxpayers: For those eligible, the process is significantly simplified.
• Increased compliance and reduced tax evasion: Automated systems enhance HMRC's ability to monitor tax payments and detect discrepancies.

How HMRC Will Receive Your Information:

HMRC is moving towards a more data-driven approach to tax collection for your HMRC tax returns.

• Real-time information updates: Data flows directly from employers and other sources.
• Automated calculations of tax liabilities: This removes the manual calculation burden from taxpayers.
• Easier access to tax information for taxpayers: Access to tax information will become easier through online portals.

What You Need to Do

Even with the changes, some actions are crucial for a seamless experience with your HMRC tax returns.

Check Your Eligibility:

Carefully review your income sources to determine if you're eligible for the automatic tax return exemption. Use the HMRC website's eligibility checker to be sure.

Update Your Contact Details:

Ensure your contact information (address, phone number, email) is accurate with HMRC. This prevents delays in processing your tax information and receiving important updates regarding your HMRC tax returns.

Maintain Accurate Records:

Even if you don't file a return, keep accurate records of your income and expenses. This is essential for your own financial tracking and can prove invaluable should any discrepancies arise.

Conclusion

The HMRC changes regarding tax returns represent a significant simplification for many taxpayers. Thousands will benefit from the streamlined process, eliminating the annual burden of completing a self-assessment form. However, it's crucial to understand which income types still require manual tax return filing. Check your eligibility and update your details with HMRC to ensure a smooth tax process. Stay informed about future updates regarding HMRC tax returns and Making Tax Digital to remain compliant. Understanding these new HMRC tax return rules is key to ensuring accurate and timely tax payments.