Marriage Allowance

RobinJay

I understand this is a complicated but I think the MSE explanation of how this works is over simplistic, and potentially misleading. Either that or HMRC are applying the rules incorrectly.

The difficulty is the idea that this Marriage Allowance is 'added to your tax code', it very definitely is not. It is a separate tax allowance that is calculated separately and used to reduce your tax bill after the tax bill has been calculated.

If it were added to your tax code as the MSE article suggests, then your tax code would go up. Among other things, the tax code is use to calculate how much Savings Allowance you can have, that is, where your Savings Allowance starts. HMRC disregard this Marriage Allowance tax code addition when working out the Savings Allowance.

I am sure they are not supposed to. Here is the MSE article on the subject, which says:

Does the £17,850 limit apply to everyone? No, if you have a higher personal allowance for income tax, your limit rises by the same amount. So...

• If you get the blind person's allowance, your limit would be £20,240.
• If you get the married couple's allowance, your limit will be raised, though by how much depends on your circumstances. Use the Married Couple's Allowance calculator to find out, then add £17,850 to find your limit.

Now the MSE article doesn't say that Marriage Allowance is included as something that can give you a more effective Savings Allowance, but it does say:

If you have a higher personal allowance for income tax, your [Tax Free Savings Allowance] limit rises by the same amount.

The way HMRC work it at the moment this simply isn't true. What they do in practice is to work out your tax bill taking into account your Savings Allowance and your original tax code. Then they add on the discount for the Marriage Allowance separately.

Does this make any difference, and if you have a large amount of savings aren't you rich enough to pay tax anyway, so what are you complaining about?

Well yes it does, a big difference. Take the situation that occurred when person A transfers £1160 allowance to their spouse B. They are earning just enough to make this a good thing to do and it reduces their tax bill to a few quid a year.

Then the couple make a claim for PPI mis-selling and are awarded a once in a mortage lifetime tax free lump sum, plus interest, to put the couple back in the situation they would have been in. The interest covers a period of many years and is a significant amount of money, that takes the couple over the Savings Allowance threshold. So these people are not rich, they are just claiming back what they were entitled to through miss-selling PPI.

Based on B's enhanced personal tax code, B should be entitled to £5000 of savings income disregarded for tax purposes. However HMRC do not use the personal tax code when making this calculation, they use the basic personal allowance tax code. Therefore B has to pay additional tax on £1160 of their PPI money because this is treated as bank interest and therefore savings, and their savings allowance is reduced by this 'excess' income. The fact they are supposed to have a higher personal tax code because of the Marriage Allowance transfer is completely ignored.

The £1160 tax allowance is only added on at the end and is worth a flat rate tax discount.

Can anyone clarify whether the allowance is supposed to be added to your personal tax code or not. HMRC are not doing it that way at the moment, are they wrong?

Consumerist

RobinJay wrote: »

. . . Can anyone clarify whether the allowance is supposed to be added to your personal tax code or not. HMRC are not doing it that way at the moment, are they wrong?

As I understand it, Marriage Allowance for the current tax year is applied through an adjustment to tax codes of both parties. Back-dated claims are paid by lump-sum refunds. Whether the adjustment is specifically applied to the Personal Allowance is a moot point.

Dazed_and_confused

During the year it is added to your tax code. gov.uk mentions tax codes with Marriage Allowance taken into account end with either M or N rather than the standard L.

But when HMRC review things at the end of the year (or when you complete a Self Assessment tax return) your tax code is irrelevant and they calculate your tax position taking into account the tax deduction a Marriage Allowance receiver gets (or reduced Personal Allowance the applicant is entitled to).

If they didn't include it in the tax code somehow then we would presumably get posters on here complaining that they had to wait until after the end of the tax year before getting the benefit of it. Not sure what other option there is?

Married Couple's Allowance works the same as Marriage Allowance it's, an amount that knocks something off your overall tax bill. It isn't an extra Personal Allowance. It is admittedly far more generous than Marriage Allowance but ultimately it is still not an extra "allowance" but a tax reducer.

I'm not actually sure quite what the problem is? In your example person B is still saving £238 in tax (assuming they have that large a liability to start with).

Consumerist

Dazed_and_confused wrote: »

. . . If they didn't include it in the tax code somehow then we would presumably get posters on here complaining that they had to wait until after the end of the tax year before getting the benefit of it. Not sure what other option there is?

I think this is the crux of the problem HMRC faces.

The way MA is applied is just a means of giving the allowance during the year for which it is being claimed rather than waiting until the end of the tax year when all the numbers are in and a definitive determination of tax liability can be made.

Dazed_and_confused

Consumerist

True but neither the applicant or receiver loses the £5,000 starter savings rate band by applying for Marriage Allowance.

The applicant will start to eat into the starter savings rate band sooner with any wages/pension income above the reduced Personal Allowance they get but the receiver still gets the £238 tax credit.

Really need some actual figures to understand quite what the op feels they are losing out on.

polymaff

RobinJay wrote: »

Can anyone clarify whether the allowance is supposed to be added to your personal tax code or not. HMRC are not doing it that way at the moment, are they wrong?

In the legislation, MAT is a very simple system. HMRC have made its implementation complicated (in an attempt to make it simple, they said ).

That raises the question you pose as to "are they wrong?". There is always a grey zone as to how legislation is to be implemented. The implementation is in HMRC's hands - the only requirement being that that that implementation must not conflict with the legislation.

For MAT their implementation is in the grey zone. Specifically, the concept of a fixed rebate set against the recipient's liability is not part of the legislation. Not only is it not part of the legislation, but the legislation clearly states that this issue will be implemented by changing the donor and recipient's personal allowances. HMRC's response is that they are still implementing the intent of the legislation - just by a process which is harder to abuse (their words).

So, I think that HMRC are wrong in that they have contradicted the legislation. and so gone beyond the established practice as to how much freedom they have in implementing the legislation'.

That's bad enough, but there's an added problem - the law of unintended consequences. HMRC's guidance as to how MAT works is STILL wrong - in terms of their implementation - because of the unintended consequences that arise. HMRC don't accept this is so. In addition their implementation has also raised quite a few issues that aren't addressed at all in the legislation because the legislators - correctly - saw no need to be more detailed about some aspects of MAT - as those aspects would have no relevance to a correct implementation of their specification.

SNAFU

colin_duerden

I wonder if someone can help. I have applied for Marriage Allowance and have received some tax credits for the two years 2015-2016 and 2016-2017 tax years. However I have not as yet received a refund for the tax year 2017-2018. Can anyone tell me why there is a delay.

JimmyTheWig

colin_duerden wrote: »

I wonder if someone can help. I have applied for Marriage Allowance and have received some tax credits for the two years 2015-2016 and 2016-2017 tax years. However I have not as yet received a refund for the tax year 2017-2018. Can anyone tell me why there is a delay.

If _you_ applied - i.e. you gave some of your allowance to your spouse - then you won't see a refund - your spouse will.

colin_duerden

Hi Thank you for your reply. Neither my wife nor myself have received the tax refund for the tax year 2017-2018. I just wanted to know when and why this is. I hope you can help. With Kind Regards Colin

JimmyTheWig

colin_duerden wrote: »

Hi Thank you for your reply. Neither my wife nor myself have received the tax refund for the tax year 2017-2018. I just wanted to know when and why this is. I hope you can help. With Kind Regards Colin

Who is the tax payer of the two of you?
Who applied for Marriage Allowance?