Order of taxation-multiple incomes/self assessment

C_Mababejive

I am just battling with my SA for the first time !

I have multiple income sources i.e PAYE earnings,divi income and savings income and i made a contribution to a SIPP.

I am sure i have read more than once that the order of taxation can affect the final amount you end up paying?

So i guess the question is, does the HMRC calculating engine use the most efficient order for lowest tax? how would i know anyway? for the above income groups, what is the bst order of taxation ,,indeed,am i talking rubbish?

Thanks

Dazed_and_confused

No it doesn't in all cases.

However the income itself does actually have to be taxed in a prescribed order.

What can be done to manipulate this is allocate the Personal Allowance in such a way that it it makes a more beneficial use of the various different tax rates and bands.

For example it might be prudent to allocate some of the Personal Allowance against dividend income ahead of savings interest because if the interest then needed to be taxed it might fall to be taxed at either of the 0% savings rates.

There is more information and a link to the full list of problematic scenarios provided by HMRC here,

https://ion.icaew.com/taxfaculty/b/weblog/posts/2017-18-exclusions-from-self-assessment-online-filing?CommentId=b160ba45-eac9-4427-9a9c-2b8f624d45f9

londoninvestor

This is a useful doc from the Office of Tax Simplification which goes through some of the scenarios where online Self Assessment can get it wrong: link

dori2o

Tax Calculations issued via Self Assessment or PAYE should allocate tax allowances, reliefs and rate bands in the most tax efficient way, as explained above.

Dazed_and_confused

dori2o wrote: »

Tax Calculations issued via Self Assessment or PAYE should allocate tax allowances, reliefs and rate bands in the most tax efficient way, as explained above.

Not sure what point you're trying to get across?

Yes they should allocate allowances in the most tax efficient way but they clearly don't. Or are you saying otherwise?

londoninvestor

dori2o wrote: »

Tax Calculations issued via Self Assessment or PAYE should allocate tax allowances, reliefs and rate bands in the most tax efficient way, as explained above.

Have a look at the example on pages 14-15 of the link I posted above.

Office_of_Tax_Simplification wrote:

the ability to allocate the personal allowance against dividend income in preference to other income sources to reduce the tax payable was not accounted for in the HMRC self-assessment calculations.
...
In cases like these, taxpayers were asked to file a paper return by the normal online filing date of 31 January to secure the most advantageous allocation of allowances. The OTS understands that while corrections were made to the calculation software for 2017/18, further errors have resulted.

So a documented case where the Self Assessment calculation would have resulted in the taxpayer paying more than the law requires.

C_Mababejive

So if errors are made, can you reclaim the excess assuming you spot it and can demonstrate it??

londoninvestor

C_Mababejive wrote: »

So if errors are made, can you reclaim the excess assuming you spot it and can demonstrate it??

Yes you can - I think (based on the doc I cited) that the procedure is to do a paper tax return and clearly indicate to HMRC how you want to allocate your personal allowance to different types of income.

C_Mababejive

londoninvestor wrote: »

Yes you can - I think (based on the doc I cited) that the procedure is to do a paper tax return and clearly indicate to HMRC how you want to allocate your personal allowance to different types of income.

Hmm,i need to look into this as i dont fully understand how it works but i have passed the paper deadline anyway and am on line..

antrobus

C_Mababejive wrote: »

Hmm,i need to look into this as i dont fully understand how it works but i have passed the paper deadline anyway and am on line..

The paper deadline is 31 October. You still have a week.

Dazed_and_confused

The paper filing deadline is irrelevant if the op's circumstances mean they hit one of the exclusions.

The HMRC document on the ICAEW link posted earlier in this thread starts with,

1. Where a personal return cannot be filed online for a reason listed below, provided that a paper return is delivered on or before 31st January following the end of the tax year to which the return relates, HMRC will accept that the taxpayer had a reasonable excuse for failing to file a paper return by the normal 31st October deadline. A reasonable excuse claim should accompany the paper return.
2. Any paper return submitted must conform to the normal rules for paper returns even if it is a computer generated paper return e.g. it must hold a valid signature.