Starting rate for savings

polymaff

Birdie6972 wrote: »

Let's see if I can explain by example. My pension income is 14000 and my savings interest is 5000, making a total of 19000.

Example 1: tax return submitted without marriage allowance

Income 14000
Less basic personal allowance of 10600
So tax payable on 3400 @ 20% = 680
Now, I have used up 3400 of the 5000 starting rate, which means I get only 1600 at 0% rate
The remainder of my savings is 3400, taxed at 20% = 680
Making a total tax bill of 1360.
This is the same as taking the total income of 19000 and deducting 15600, leaving 3400 of savings to be taxed at 20%.

Example 2: how HMRC have applied the marriage allowance

Income 14000
Less personal allowances of 10600+1060
So tax payable on 2340 @ 20% = 468
Savings treated exactly the same as example 1
1600 at 0% rate
3400 at 20% = 680
Making a total tax bill of 1148
This is the same as taking the total income of 19000 and deducting 15600, leaving 3400 of savings to be taxed at 20%.

Example 3: my calculation

Income 14000
Less personal allowances of 10600+1060
So tax payable on 2340 @ 20% = 468
I have used up 2340 of the 5000 starting rate, which means I now get 2660 at 0% rate
and 2340 at 20% = 468
Making a total tax bill of 936.
This is the same as taking the total income of 19000 and deducting 16660, leaving 2340 of savings to be taxed at 20%.

Summary

Example 1: tax is 1360
Example 2: tax is 1148
Example 3: tax is 936

Is this clear?

Very clear. So it looks like HMRC consider that the SRA is always stacked directly upon the PA and that the MA is just a detached allowance to be applied to taxable non-savings income.

I wonder if that was how they intended it to be?

Birdie6972

Also, I should add that I based my calculation on the tax code I was given by HMRC.

Before MA was applied, my tax code was 10600-3400=7200 (code 720)
This meant I had 7200 tax free, so 14000-7200=6800@20% gives 1360.

After MA was applied, my tax code was 11660-2340=9320 (code 932)
This meant I had 9320 tax free, so 14000-9320=4680@20% gives 936.

So it was this second tax code which set my expectation of a tax bill of 936. But HMRC are saying I need to pay 1148 (i.e. another 212)

So did they get my tax code wrong?

Hope this is clear.

Birdie6972

Polymaff:

With hindsight that may be what they intended, because it simply gives you back £212, which I believe was the original intention.

But the tax code they issued me with suggests otherwise. Hence the confusion.

polymaff

Birdie6972 wrote: »

.......

Birdie, have a look further down the SA302 - that is the explanation of HMRC's calculation. At, about, line 30 is there an entry labelled

"less Marriage Allowance transfer" ?

If so, what does it say and what is its effect upon the figure at

"Total income on which tax is due"

slightly further down the SA302?

Birdie6972

Xylophone:

For 2017, the figures in question are:

Personal allowance 11000
Marriage allowance 1100
Personal savings allowance 1000
Starting rate for savings 5000

Total excluding MA is 17000
Total including MA is 18100

For 2017 my savings interest has gone down to 4000, so my total income is 18000.

My tax code is 1210 giving me the full tax free allowance of 12100, with no tax to pay on my savings interest at all. This means they have used the higher figure of 18100.

This just doesn't stack up with the way they've calculated my 2016 tax return.

Birdie6972

Hi Polymaff,

My s302 simply says "minus marriage allowance transfer" and they have deducted 212 from the original figure of 1360, making 1148. Not 936.

polymaff

Birdie6972 wrote: »

...

This just doesn't stack up with the way they've calculated my 2016 tax return.

One year's process may not be the same as that for the last, so don't get diverted from dealing with 2015/16 by speculation about 2016/17.

polymaff

Birdie6972 wrote: »

Hi Polymaff,

My s302 simply says "minus marriage allowance transfer" and they have deducted 212 from the original figure of 1360, making 1148. Not 936.

and this has propagated through to the other figure I asked you to check?

Every year HMRC publish a document describing how they intend to implement the processing of that year's Income Tax Returns. It is a fiendishly complicated document, but one which a few of us have to become familiar with. Checking that document, it confirms my previous comment. Basically, the MAT plays no part in the actual assessment but appears only later, when the liability is being calculated in the SA302. This document is the ultimate reference document and, as they appeared to have processed your return in conformance with that document they are, by definition, right

As for the P2 having mislead you, I'd need more data.

This document, by the way, usually appears in the late Autumn of the year in question. The latest was in November 2015 - at issue 13 :rotfl:

Until the same document appears for 2016/17, nothing about that tax year is certain - hence my earlier comment.

Birdie6972

Hi Polymaff

Ref. The P2 notice of coding (see post #13) :

Before MA was applied, my tax code was 10600-3400=7200 (code 720)
This meant I had 7200 tax free, so 14000-7200=6800@20% gives 1360.

After MA was applied, my tax code was 11660-2340=9320 (code 932)
This meant I had 9320 tax free, so 14000-9320=4680@20% gives 936.

When the MA was applied you can see that they added 1060 to 10600 making 11660, and at the same time reduced the figure of 3400 by 1060, making 2340.

This makes a difference in code from 720 to 932, which equates to 2120 @ 20% = 424.

I am not worrying about 2017 at the moment ��

Birdie6972

Sorry Polymaff, was this the other figure you asked for?

Total income on which tax is due = 8400 (19000-10600)

The rest of the calculation is as Example 1 in post #12.

It then says "income tax charged" 1360

Then "minus MA transfer" 1360-212 = 1148.

Has this answered your questions?

Thanks.