Help with personal allowance removal over £100k

aktivemac

Hello all,

I've spent all night reading various tax websites and my brain is swimming. I've recently been sent a request by HMRC to complete a Self Assessment for the 2010/11 tax year. My base is less then £100k, but with bonus and benefits I have been on around the £120k mark for the last couple of years - I guess thats why SA has been triggered. As I only got sent the request last month, I have been set a deadline of April 19th 2012 to submit the SA online. I was keen to get it sorted, so I completed it tonight (I am PAYE and have little other income, other than interest income, so thought it would be straight forward).

The outcome was that I have underpaid by £2600. Initially I was slightly shocked, but after a lot of research I realise that I've fallen foul of the disappearing personal allowance over £100k and my tax code for 2010/11 stayed flat at 647L, so I guess PAYE didn't deduct enough tax.

Could I ask a few questions about the above please?

1) Does it make sense that my tax liability has come from the personal allowance disappearing?

2) Given that I had until April 19th to submit and I have done it early (Feb 5th) - have I been a bit silly by submitting way ahead of my deadline and therefore making the payment due within the next 30days? or will it only be due 30days after April 19th?

3) The guidance seems to be that for 2010/11 any tax owed under £2000 can be dealt with using a tax code correction - does my amount at £2600 mean I have to pay it within 30 days in one amount, or has anyone had experience with HMRC being flexible in allowing slightly higher amounts to be collected through a tax code change? If they won't accept a tax code change for this amount, how are HMRC about spreading payment over a longer period? And if they do allow this, are there any negative implications about requesting this (interest, charges, credit rating impact... etc)

4) My tax code for the year 2011/12 has been 747L, so given my earning are on track to be c.£120k again, I guess I'm going to have the same issue again next year? How can I get my code changed? Will this happen automatically, or do I need to ring HMRC and change it?

Sorry for all the questions, but this is my first SA and just want to make sure I'm not missing anything.

Thanks for all the help,
Richard.

getmore4less

Looks about right, 40% of £6475 is £2590.

Can you review pension payments to get back under the £100k.


No idea on payment plans but with £6k netpm I would have thought a couple of £k would be well within a float/emergency fund.

I would give HMRC a ring and see what they want you to do.

chrismac1

Nothing you can do about 2010-11, plenty you can do to avoid the marginal rate of tax of 60% for 2011-12. I have a little calculator for my clients in your income range so they can make exactly the right pension contribution to avoid the 60% tax, you are right in the "sweet spot" where it makes sense to do this or some other measure to avoid the whammy.

agrinnall

I'm always puzzled by people who earn over £100K but don't have any spare funds for unexpected expenses (and in this case the OP has 3 months to get the money together, so it's not that unexpected). I know I'm likely to get the "you have no idea of my commitments" speech but surely it makes sense not to be so committed that you don't even have less than 3% of your earnings as a backup fund. In various sections of this forum people earning a fraction of this amount are regularly told that they should have 6 months pay available in case of redundancy, sickness, etc., shouldn't high earners also be encouraged to at least build up some sort of reserve?

AirlieBird

aktivemac wrote: »

3) The guidance seems to be that for 2010/11 any tax owed under £2000 can be dealt with using a tax code correction - does my amount at £2600 mean I have to pay it within 30 days in one amount, or has anyone had experience with HMRC being flexible in allowing slightly higher amounts to be collected through a tax code change?

The amount has increased to £3,000 for tax due through SA for 2011-12. You could have this higher amount repaid through your tax code for tax due for 2010-11 but you had to contact them before the end of 2011. They may be flexible if you didn't receive your notification to complete SA before then.

aktivemac wrote: »

4) My tax code for the year 2011/12 has been 747L, so given my earning are on track to be c.£120k again, I guess I'm going to have the same issue again next year? How can I get my code changed? Will this happen automatically, or do I need to ring HMRC and change it?

To be on the safe side you can notify HMRC and ask them to change your tax code.

But you should think if you can make better tax efficient use of your money to come back under £100k.

aktivemac

agrinnall wrote: »

I'm always puzzled by people who earn over £100K but don't have any spare funds for unexpected expenses (and in this case the OP has 3 months to get the money together, so it's not that unexpected). I know I'm likely to get the "you have no idea of my commitments" speech but surely it makes sense not to be so committed that you don't even have less than 3% of your earnings as a backup fund. In various sections of this forum people earning a fraction of this amount are regularly told that they should have 6 months pay available in case of redundancy, sickness, etc., shouldn't high earners also be encouraged to at least build up some sort of reserve?

Thanks everyone for the advice.

In relation to the above point, I do have the cash to pay the full amount now I was just enquiring as to the payment options. Why would I want to pull cash out of a savings account to pay this if it can be taken at source via tax code change over an extended period - surely its not seen as outrageous that I would consider this? Very happy to pay the tax I owe, but doesn't mean I dont want to enquire as to the most efficient way to pay it...

Thanks again everyone - think a conversation with HMRC is in order

zygurat789

Because of the way tax on your level of income is taxed there is no way your liability can be correctly corrected through a code number. You should always be sent a tax return and you will either have to make a final payment, which can be incorporated into next years code number or, maybe, receive a refund.

aktivemac

zygurat789 wrote: »

Because of the way tax on your level of income is taxed there is no way your liability can be correctly corrected through a code number. You should always be sent a tax return and you will either have to make a final payment, which can be incorporated into next years code number or, maybe, receive a refund.

Ah ok, thanks that helps.

Richard.

agrinnall

aktivemac wrote: »

In relation to the above point, I do have the cash to pay the full amount now I was just enquiring as to the payment options. Why would I want to pull cash out of a savings account to pay this if it can be taken at source via tax code change over an extended period - surely its not seen as outrageous that I would consider this? Very happy to pay the tax I owe, but doesn't mean I dont want to enquire as to the most efficient way to pay it...

That's good then, it didn't quite read that way, but you are of course right to find the best way to pay anything you owe (although with interest rates as low as they are then taxed at 50% it probably doesn't make a lot of difference when you pay it ).

I hope you took note of chrismac1's post about pension contributions, get this right and you can mitigate the loss of your personal allowance and not need to worry about changing your tax code.