Tax allowance query

Pete111

Hi

Just had my 20010/11 tax coding notice through and as usual I note that they have reduced my allowance to reflect the private medical insurance provided by my employer - nothing of concern there.

However, it occurred to me that I also fill out a tax return each year (I have non PAYE Income also) and I always include the details of my P11D for the relevant tax year from my company.

I am slightly concerned that in doing this that HMRC is:

a) reducing my TFA each year to take into acount the insurance
as well as
b) hitting me for the taxable amount on it retrospectively each year when I make my 'extra' tax payments - effectively double bubble.

I know that my P11D goes to HMRC each year anyway and that a clever system should know my TFA had already been reduced and subsequently discount the medical insurance amount from being applied to the calculations - despite it being declared in my tax return as a benefit in kind for a given tax year.

My question is therefore , is the system that clever or am I likely to be paying twice? Appreciate any thoughts re this as I have been doing this for years....

P

Pete111

*Bump*

Anyone? HMRC are apparently too busy to pick up the phone (Cheers guys!) and I'm due to pay my tax bill this week...

zygurat789

If you put your P11D on your tax return then, presumeably you also put your payslip figures on too, including tax paid. Your total liability is calculated and tax paid deducted before your payment is calculated.
I don't understand why you think you are paying twice

Pete111

I did indeed - I guess the system should therefore recognise (by the reduction in my TFA) that no further tax should be applied on any BIK even if I entered it onto my return? For reference the value of the insurance was more or less constant

It's not really about taxable earnings per se however (these are taxed appropriately either by PAYE or via my return) more about them reducing my TFA every year when I also appear to be paying tax on the relevant BIK via my return.

When I left this off my tax return and asked it to calculate my liability the overall number owed was much lower indicating to me that HMRC had not taken into account that my TFA for that tax year had already been reduced via my tax code to compensate for the expected BIK. I put the figures back in and seem to have a larger tax bill to pay - this is why I think I may be paying twice.

zygurat789

Your PAYE payments are only on account of your eventual liability which will be determined by your tax retufrn calculation. You cannot treat them separately.
If you look through the calculation of your liability you should be able to see that the TFA is the total, not the reduced figure.
I am not clear as to what you have "left out" in your final para above.

MPH80

I have the same situation - but I think I'm a bit clearer on how this works.

Ok - I get my tax code - it says "you get tax free £7000" (for example) - but your medical insurance means you only get £6500 free.

Now - that means, as the year progresses - you pay a bit more tax than people without medical insurance.

When you then fill in your tax return - you put the figured from the P11D.

BUT - here's the catch - when they run the calculation on how much you owe - they don't start from the £6500 - it doesn't matter to them - they start from the £7000 again. All they care about is how much you earnt (overall) and how much tax you've already paid - then they run a fresh calculation.

In theory - you're right - providing nothing else changes, then you should end up at a liability of 0. But you also have to take into account your savings, your dividends, your pension payments, pay rises etc.

So it might look like you're paying tax twice - but it all comes out in the wash and your liability will be correct.

M.

Pete111

Thanks I will go through this all again I think for peace of mind

I have also managed to get through to HMRC who were helpful and confusing in equal measure. I'm generally nervous about HMRC and their machinations as they once over-taxed me by £1800 and it took a year and a half to get it back with a massive £5 interest added for my troubles. Basically I don't trust them!

To confirm though, I 'left out' the data relating to the value of my medical insurance when filling out my online self assesment form. When I omitted this data and asked the system to calculate the amount of tax I then owed relating to that tax year it came back with a lower figure than when I left it in. This caused me to believe I was being asked to pay the tax on this again having already done so via a reduction in my PAYE code during that tax year.

Mikeyorks

Pete111 wrote: »

When I omitted this data and asked the system to calculate the amount of tax I then owed relating to that tax year it came back with a lower figure than when I left it in.

Well it would. Just as it would return a lower figure of tax due if you lopped a couple of £thousand off your gross pay ...... but retained the original figure of tax deducted from your P60??
In essence that's what you're doing.