Loss of personal allowance - anything I can do now?

bjcl

Ok long story skip to bottom for highlights & my questions which I hope someone can help with:

In May I got a letter from HMRC saying I owed them £100 for late submission of my 2014/15 self assessment which still needed to be filed... They had been sending this to my previous address and ignoring the responses of the current occupiers that I hadn't lived there since 2009...:mad: but anyways... After getting through and speaking to HMRC they explained that the self-assessment was required as I had earned over £100k in that tax year (just under £110k) and they sent me a paper version of the forms to fill in. I did this about a month ago and sent back the paperwork along with a letter contesting the penalty charge which I feel is unfair. I am still to find out what if anything I owe resulting from this.

During the conversation HMRC confirmed that I would need to submit a tax return for 2015/16. Having finally got access to the online system I have just completed filling everything in and it has spat out that I own over £4k... :mad::mad::mad:

After picking myself up off the floor and doing some research it seems that this is essentially due to a large unexpected bonus I received at the end of March 2016 which took my total wages for the year from ~£98k to over £122k and as such completely eroded my personal allowance.

I had no idea that something like this could happen and had assumed that my PAYE tax deductions would have sorted everything given I have been employed by the same company since 2012 with no other income from pensions, dividends, etc (only other taxable income is from bank account interest which isn't exactly huge). The tax code on my P60 was 1060L which I'm guessing means my works payroll had no idea.

My last payslip shows my tax code as 588T which leads me to think that they are assuming that I will lose some of my personal allowance this year but will also need to submit a tax return for 2016/17.

Based on the calculation for 2015/16, I think that once the calculations are run on my 2014/15 submission that this is going to result in me owning a further £2k or so (based on loss of personal allowance going from £100k to £110K)

Short version:
I got a large unexpected bonus in late March 2016, this pushed my gross earnings for the year from £95k to over £122k. I have just filled out my self-assessment online which is saying I have over £4k to pay (due to the loss of my personal allowance and being taxed at 40% on it).

Questions:
1) Is there anything I can now do to reduce this 2015/16 tax bill for £4k?
2) Is there anything I can now do to reduce the 2014/15 tax bill when I get it back?
3) I am not expecting to earn over £100k this year but is there anything I can do now to limit the impact if I was pushed over this mark again at the end of March 2017?
4) What does the 588T tax code actually mean?

Thanks for reading!

Dazed_and_confused

bjcl wrote: »

Ok long story skip to bottom for highlights & my questions which I hope someone can help with:

In May I got a letter from HMRC saying I owed them £100 for late submission of my 2014/15 self assessment which still needed to be filed... They had been sending this to my previous address and ignoring the responses of the current occupiers that I hadn't lived there since 2009...:mad: but anyways... After getting through and speaking to HMRC they explained that the self-assessment was required as I had earned over £100k in that tax year (just under £110k) and they sent me a paper version of the forms to fill in. I did this about a month ago and sent back the paperwork along with a letter contesting the penalty charge which I feel is unfair. I am still to find out what if anything I owe resulting from this.

During the conversation HMRC confirmed that I would need to submit a tax return for 2015/16. Having finally got access to the online system I have just completed filling everything in and it has spat out that I own over £4k... :mad::mad::mad:

After picking myself up off the floor and doing some research it seems that this is essentially due to a large unexpected bonus I received at the end of March 2016 which took my total wages for the year from ~£98k to over £122k and as such completely eroded my personal allowance.

I had no idea that something like this could happen and had assumed that my PAYE tax deductions would have sorted everything given I have been employed by the same company since 2012 with no other income from pensions, dividends, etc (only other taxable income is from bank account interest which isn't exactly huge). The tax code on my P60 was 1060L which I'm guessing means my works payroll had no idea.

My last payslip shows my tax code as 588T which leads me to think that they are assuming that I will lose some of my personal allowance this year but will also need to submit a tax return for 2016/17.

Based on the calculation for 2015/16, I think that once the calculations are run on my 2014/15 submission that this is going to result in me owning a further £2k or so (based on loss of personal allowance going from £100k to £110K)

Short version:
I got a large unexpected bonus in late March 2016, this pushed my gross earnings for the year from £95k to over £122k. I have just filled out my self-assessment online which is saying I have over £4k to pay (due to the loss of my personal allowance and being taxed at 40% on it).

Questions:
1) Is there anything I can now do to reduce this 2015/16 tax bill for £4k?
2) Is there anything I can now do to reduce the 2014/15 tax bill when I get it back?
3) I am not expecting to earn over £100k this year but is there anything I can do now to limit the impact if I was pushed over this mark again at the end of March 2017?
4) What does the 588T tax code actually mean?

Thanks for reading!

1. Possibly involving pension payments or gift aid but not my area of expertise - someone more knowledgeable from mse community will hopefully post something idc. Anything you can do though is likely to incur a cost elsewhere so even if you can pay extra into a pension and get some tax relief for 2015:16 you will still be paying out more money but it may be "tax efficient" option
2. Don't think so
3. You could ask HMRC to increase your expected salary to £122000+ so your tax code no longer includes and personal allowance. If it turns out your income is as you expect per your op then you will get the benefit of any allowance due when you file your self assessment return. Again pension payments may be something to consider
4. 588T could be made up from any one of millions of different combinations but is highly likely to be simply a reduced personal allowance because of your expected salary.
This years tax codes are normally sent out after Christmas (well mine was) so at that time the latest P60 HMRC would have had would the one for 2014:15 where you earned, per your op, approx £110k.
In round figures salary 110,000 is 10000 over the allowance limit so you lose 5000 of your allowance - for this year (2016:17) the standard allowance is 11000 so yours could be reduced by 5000 to 6000 which would equal code 600T.
There may be other things taken into account like your savings interest but only way to be certain is to log into your personal tax account and check your code there to see how the 588T has been arrived at.

I think you can also use the personal tax account to keep HMRC up to date with your address.

Cook_County

If you want to eliminate the tax bill for 2015-16 you can make a large enough donation to gift aid and claim it as being paid before 6 April 2016. With a 60% rate of tax relief, you may want to be benefit your favourite charity.

MDMD

Cook_County wrote: »

If you want to eliminate the tax bill for 2015-16 you can make a large enough donation to gift aid and claim it as being paid before 6 April 2016. With a 60% rate of tax relief, you may want to be benefit your favourite charity.

This can only work if you haven't actually submitted your return. Once you press submit, you can't make the carry back claim

Per HMRC

If you make any Gift Aid payments between 6 April 2016 and the date you submit your tax return for the year ended 5 April 2016, you can include those payments in that return.

https://www.gov.uk/government/publications/charitable-giving-hs342-self-assessment-helpsheet/hs342-charitable-giving-2016

bjcl

Thanks for the advice and answers gents, much appreciated

Cook_County is it legit to backdate a charitable contribution like that? Hopefully would also work for a pension contribution?

I know it is very much a problem people would like to have but equally if I can avoid paying HMRC another £4k (on top of the £46k in tax & NI I've paid through PAYE) I would be a very happy bunny

Thanks again
BJCL

jem16

bjcl wrote: »

Hopefully would also work for a pension contribution?

It won't work for a pension contribution as you cannot backdate it.

bjcl

Thanks Jem - not the answer I was hoping wanted but hey-ho!

madgagoo

You could also look at an EIS or SEIS investment.

A £13,333 EIS investment would given tax relief of £4,000 or an SEIS investment of £8,000 would get you £4K relief. Both of these could be made before 5/4/17 and backdated to 2015/16.

They are generally towards the riskier end of investing, particularly SEIS, so you may end up losing the investment. However you also have the possibility of making money on it!

The tax saving should only be part of the reason for investing though.

As for your current tax code, I would tell HMRC you expect to earn enough to lose all your personal allowance (£122k+) and then when you submit your tax return hopefully you will be due a repayment, rather than have a liability.

Nothing that can be done about 14/15 now. Might be worth getting yourself a tax adviser to look over it though, to make sure HMRC are correct.

ChuckMountain

As MDMD states you don't physically back date the charity donation, you choose the option on SA to treat those donations as if they were made in the respective tax year.

Every £100 you donate to charity, would give £125 to the charity but in reality only costs you £50 (assuming the donation takes your back into the personal allowance reduction zone)

The 588T means HMRC will collect around an additional £1,888 from you towards your tax bill for 16/17.

The other way round:-

If you are not sure if you are going to get the bonus and your taxable salary will be below £100k then you can ring up HRMC and advise them of this and state your expected salary.

This will then restore your personal allowance and you will get a tax refund for months so far in this year you have paid the previous tax code.

If you do get a bonus at the end of the year PAYE will will only pay 40% tax on it so you have to keep 20% tax (up to a max of £4,240 for total loss of PA). This would then need to be paid in the SA for 16/17.

If you stick in a bank till you pay your SA which would be as late as Jan 2018 then at least you get the benefit rather than HRMC having it.

Obviously its most frustrating having to effectively pay 60% tax on your bonus but unless you have charity deductions or other methods as mentioned above not much you can do about it. It was Labour's last parting gift to us !

Discodave

Just to add, althou this may have been covered....

for every £2 you exceed the £100k (which would be lovely, if im honest), your tax code is reduced by £1, so when you reach approx £122k, you should, in theory receive ZERO Allowance (or a tax code of 0T)

Now, had you earned £99,999.99, your code may have been correct (and possibly would not have to complete SA)

You're not the first, and wont be the last to come across this situ, but its all down to you estimating your Salary for said tax year. The only way to possible "avoid" having a £4k tax bill (apart from declining a massive bonus), is to have your tax code set at 0T (again, no allowance), or possibly a K Code (if you have any company benefits like car, fuel, etc)