Changes to HMRC website guidelines on determining Adjusted Net Income.
vacheron
Posts: 1,603 Forumite
Yesterday on another thread I posted a concern regarding a "catch 22" issue I'd noticed on the HMRC website.
Their guide to calculating your Adjusted Net Income required you to enter your personal savings allowance entitlement to in order to work out your personal savings allowance entitlement!
Somehow HMRC must have got wind as today I noticed they have edited their page to remove the reference to personal savings allowance as a tax relief, however they then went further and have also deleted the dividend allowance from the page as a tax relief also.
The edited page shows no evidence that they have done this as they have not changed the "page updated” date at the bottom of the page, nor have they listed the deletions in the change history beneath it.
This is how their page looked previously with today's changes identified in red:
These changes could affect many people with modest savings or dividend income and employment income just under the £43,000 “higher rate” threshold. For example:
Salary £42,800 and £10K in a Santander 123 account paying £300pa. As at least £500 of savings income is now tax free to everyone earning under £150k due to the recently introduced "personal savings allowance" you assume that you are not a higher rate taxpayer as you are not required to pay a penny of higher rate tax.
You earn £42,800 and receive £220 in dividends. As £5000 of dividend income is now tax free from April 2016 you assume that you are not a higher rate taxpayer as you are not required to pay a penny of higher rate tax.
In the examples above this would have been correct yesterday, however with today’s change to their website you will now be considered a higher rate taxpayer despite not having to pay a single penny more tax!
A worst case example could be someone with a dividend income of £10K and salary income of £38K will now be eligible to pay higher rate dividend tax on an extra £5000 of dividend income than the HMRC website suggested yesterday.
In addition to this, all those in the situation above (whether they have paid a penny of higher rate tax or not) who are currently eligible for marriage allowance are at risk of having it removed at a cost to them of £220.
The marriage allowance website does currently not indicate if the income figures provided on their page should be determined using “adjusted net income” or not, but my assumption would be that it is.
This is my layman's interpretation at least. Hopefully the professionals and experts on here (or maybe even HMRC) can tell me if I am wrong and I'll correct where necessary.
Their guide to calculating your Adjusted Net Income required you to enter your personal savings allowance entitlement to in order to work out your personal savings allowance entitlement!
Somehow HMRC must have got wind as today I noticed they have edited their page to remove the reference to personal savings allowance as a tax relief, however they then went further and have also deleted the dividend allowance from the page as a tax relief also.
The edited page shows no evidence that they have done this as they have not changed the "page updated” date at the bottom of the page, nor have they listed the deletions in the change history beneath it.
This is how their page looked previously with today's changes identified in red:
How to work out your adjusted net income
Work out your adjusted net income by following steps 1 to 4 below.
Step 1 - work out your ‘net income’
Add up your taxable income.
Include things like:
- money you earn from employment (including any benefits you get from your job)
- profits you make if you’re self-employed including from services you sell through websites or apps
- some state benefits
- most pensions (including the State Pension, company and personal pensions and retirement annuities )
- interest on savings and pensioners bonds
- dividends from company shares
- some rental income
- income from a trust
Take off any tax reliefs that apply like:
This is your ‘net income’.
- payments made gross to pension schemes - those that have been made without tax relief
- trading losses, for example trade loss relief or property loss relief
- personal savings allowance if you have savings interest and you are not an additional rate tax payer - NOW DELETED
- dividends allowance for part of your income if you are paid dividends- NOW ALSO DELETED
These changes could affect many people with modest savings or dividend income and employment income just under the £43,000 “higher rate” threshold. For example:
Salary £42,800 and £10K in a Santander 123 account paying £300pa. As at least £500 of savings income is now tax free to everyone earning under £150k due to the recently introduced "personal savings allowance" you assume that you are not a higher rate taxpayer as you are not required to pay a penny of higher rate tax.
You earn £42,800 and receive £220 in dividends. As £5000 of dividend income is now tax free from April 2016 you assume that you are not a higher rate taxpayer as you are not required to pay a penny of higher rate tax.
In the examples above this would have been correct yesterday, however with today’s change to their website you will now be considered a higher rate taxpayer despite not having to pay a single penny more tax!
A worst case example could be someone with a dividend income of £10K and salary income of £38K will now be eligible to pay higher rate dividend tax on an extra £5000 of dividend income than the HMRC website suggested yesterday.
In addition to this, all those in the situation above (whether they have paid a penny of higher rate tax or not) who are currently eligible for marriage allowance are at risk of having it removed at a cost to them of £220.
The marriage allowance website does currently not indicate if the income figures provided on their page should be determined using “adjusted net income” or not, but my assumption would be that it is.
This is my layman's interpretation at least. Hopefully the professionals and experts on here (or maybe even HMRC) can tell me if I am wrong and I'll correct where necessary.
• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki
0
Comments
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I'd say the old webpage was wrong and the new is right.
The interest/dividends are a zero rate of tax, not an exemption/allowance, so they do use up some of your basic rate band, and effectively therefore can put some of the earnings into higher rate tax.
I went on a course about recent changes and the high marginal tax rates was highlighted for those people who stray lightly over the h/r threshold due to withdrawal of allowances etc. The suggestion was to pay a small amount as charity gift aid to extend the basic rate band (or increase the h/r threshold) so that total income doesn't breach it!
Fiendishly complicated and no surprise that the webpages were drafted wrong.0 -
with today’s change to their website you will now be considered a higher rate taxpayer despite not having to pay a single penny [of tax at higher rate]
This has, as I understand it, been the HMRC position from the start. One of several UXBs dropped into Income Tax - in this era of Tax Simplification. :rotfl:0 -
........
Fiendishly complicated and no surprise that the webpages were drafted wrong.
I agree. If HMRC can't interpret their own rules correctly, what chance do people like me have!
Fortunately I have a salary sacrifice scheme so I normally wait until the new year and estimate how much I need to stuff in the pension to to stay under the limit. I then ask payroll to adjust my Jan, Feb & March pension contributions accordingly.
I don't mind the amount I have to sacrifice as much as the ambiguity from HMRC which means you never know if your interpretation matches theirs!• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
I agree. If HMRC can't interpret their own rules correctly, what chance do people like me have!
But you have MSE as your guide.
From last March:
http://forums.moneysavingexpert.com/showpost.php?p=70321283&postcount=8
Not to mention:
http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9
which, six months after being posted, still seems to get it right.0 -
But you have MSE as your guide.
From last March:
http://forums.moneysavingexpert.com/showpost.php?p=70321283&postcount=8
Indeed. Looks like the MSEers got it right despite tha fact that up until yesterday that very page you referenced in your linked post was telling everyone to deduct their £5k dividend allowance and £500 or £1000 savings allowance from their net income figure. :doh:• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
Indeed. Looks like the MSEers got it right despite tha fact that up until yesterday that very page you referenced in your linked post was telling everyone to deduct their £5k dividend allowance and £500 or £1000 savings allowance from their net income figure. :doh:
Note the other link I added. The model described therein was based upon an early recognition that to understand 2016/17, even the experts would need to reverse their normal thinking and begin by working out the total adjusted income - and doing it in accord with HMRC's own internal documentation rather than relying on individual HMRC agents' guesses as to what it all means.
Although note that in March, when I wrote those postings, the internal documentation seemed to have settled at version 13. Since then they've staggered up to issue 16! - but that is down to that other mega-UXB, the Marriage Allowance Transfer. 0 -
Not to mention:
http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9
which, six months after being posted, still seems to get it right.
Wouldn't your £43,000 to get £1000 savings allowance now have to be £42,000 otherwise £1000 of savings interest would make you a higher rate payer and thereby reduce it back to £500 again?• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0 -
Wouldn't your £43,000 to get £1000 savings allowance now have to be £42,000 otherwise £1000 of savings interest would make you a higher rate payer and thereby reduce it back to £500 again?
No. You're making it too complicated, perhaps by misunderstanding the underlying principles of orderig that I mentioned in my previous posting*. The thing I call the £43,000 line is not a function of the PSA - or the SRA or the DA. That's the whole point. Draw the column modelling the adjusted net income - THEN map the allowances onto it. The PSA amount is a function of the relationship between the column and the £43,000 line, NOT vice versa.
*"even the experts would need to reverse their normal thinking and begin by working out the total adjusted income"
EDIT: At least until version 17 comes out 0 -
No. You're making it too complicated, perhaps by misunderstanding the underlying principles of orderig that I mentioned in my previous posting*. The thing I call the £43,000 line is not a function of the PSA - or the SRA or the DA. That's the whole point. Draw the column modelling the adjusted net income - THEN map the allowances onto it. The PSA amount is a function of the relationship between the column and the £43,000 line, NOT vice versa.
*"even the experts would need to reverse their normal thinking and begin by working out the total adjusted income"
EDIT: At least until version 17 comes out
Yup. I was making it over-complicated by trying to add things in "step by step" which was creating the confusion!
You're right about reversing the normal way of thinking. I'm sure many who are used only to considering the personal allowance (myself included) are working from an "up through" approach, whereby we work up through the first £11k of income (or whatever your tax band dictates) and then effectively "reset the counter" before then counting up through the tax bands.
As you say, the new allowances require a completely different approach of heaping all your income together before selectively chopping your deductibles off the top.• The rich buy assets.
• The poor only have expenses.
• The middle class buy liabilities they think are assets.
Robert T. Kiyosaki0
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