HMRC tax estimation on HL accounts

trickydicky14

I have a SIPP account with HL, I also have basic savings with HL via active savings.

My SIPP is only used to put £2880 each year have it topped up by HMRC to £3600 then draw out as many people do, at the current time I’m just about a non-tax payer.

My question is, HMRC have picked a number on how much income they think I will get from HL this tax year and if its based just on my SIPP then it is way too much.

So, would they be using this number just for my SIPP or would this also include predicted interest from my basic savings accounts with HL?

I assumed HL are just a middle man regarding the savings accounts and any tax due would be sorted via the providers of the said savings account and not come under the umbrella of HL asset management LTD.

I know I can submit a new figure for income from HL via my HMRC tax account but need to clear up the above question first before messing with current figures.

Thanks for any help.

xylophone

The money you take from the SIPP is pension income.
The savings accounts generate savings interest.
Have you looked at your personal tax account?
https://www.gov.uk/personal-tax-account

Dazed_and_C0nfused

The SIPP would be employment/pension income and the savings account would be untaxed interest.

trickydicky14

When I look at my personal tax account online, my allowances are just under two headings.
1. My small NHS Pension
2. HL asset management Ltd.
Now within a few pounds my NHS pension will stay the same so the allowance allocated to that is about correct.
But the estimated figure given to my HL account is almost twice the amount in the account so that number has to be wrong.
That is why I asked the question, is that HL allowance just to cover my SIPP or does it also include my general savings that I have with HL.

Dazed_and_C0nfused

That will be the SIPP only.

Savings interest from HL will be shown (if necessary) as untaxed interest in your tax code 

zagfles

It probably cos the SIPP "income" is paid via PAYE and the usual assumption is that what you've earned so far during the tax year you'll continue to earn at the same rate in the rest of the tax year. For instance if your SIPP taxable income was £2700 Apr-July (4 months) it'll assume you'll earn £8100 over the year (12 months). 

Just update the estimate.

Linton

HMRC will set your tax codes to split your total tax allowance between the those incomes which are taxed at source. eg £2500 to your NHS pension and £10K to your SIPP.  If you are receiving State Pension that will be deducted from yourallowance first. Also if any of your savings account interest should be taxed, that may result in a reduction in your available tax allowance.

So is the total of the tax allowances correct? If not pls can you let us know your incomes and the allocated allowances.

trickydicky14

Linton thanks for your post,

OK, Incomes and allocated allowances.

NHS Pension 4588- tax code 458L

HL asset management- 7913 tax code 702T This figure is incorrect as over the year I would only have taken 3600.

It states estimated income for the year 19,384

Personal allowance 1,000 @ 0%

Basic rate 883 @ 20%

I assume the two numbers above relate to the amount of savings interest HMRC think I will receive?

Tax free income 13,500

Taxed income 5,884.

Tax estimate for year 1176

So, two points the HL figure is more than double what it should be

Secondly, I have no idea how they got this figure of 5,884 taxed income from.

I can’t see how I am getting more money this year to pay tax than the past four since I have retired.

Next year will change as I will be getting my state pension.

Would it be in order for me to amend the HL number when I log into my tax account online?

Dazed_and_C0nfused

Is your pension from the NHS less than £4589?

£5,884 is estimated income £19,384 less £12,500 (Personal Allowance) and £1,000 (savings nil rate band) = £5,884

What are you hoping to achieve by changing things?

molerat

I would say that, in the absence of anything concrete and a low income, they have simply used up the rest of your allowance.  It seems that the computer likes the whole of the allowance used up. This will have no effect on the amount of tax you actually pay.

Linton

Looking at the numbers it doesnt actually matter  since you wont pay tax on either of your incomes as they are both below their allocated tax codes.

I think I can see what is going. Basically HMRC are being very clever.  The tax codes are set so that at the moment you wont pay any tax at all unless you take more than £7020  taxable from your SIPP, which you have no intention of doing.  However if you were to take more than £17500-£4580=£12920 from your SIPP you would lose all your special tax free allowance for your savings income.  So lets see what happens if you take say £12920 taxable from your SIPP.

Tax due:
Total taxable income= £4580+£12920+£1884=£19384 (does that look familiar?),  Tax due on £19384=(£19384-£12500)*0.2=£1376.8

Tax paid:
NHS Pension: (£4588-£4580)*0.2=£1.60
HL SIPP: (£12920-£7020)*0.2=£1180

OK, not exactly the same but fairly close.  Some of the details may be slightly wrong (eg I cannot see why they use 702T) for the HL tax code) but it demonstrates the point. The problem that HMRC have is that PAYE is simple but works well for earnings.  There is no practical way PAYE can be changed - a vast amount of software and procedures in every company in the country is based on it. The tax system is complicated especially for savings.  But HMRC have no way of automatically collecting the tax on savings so they would like to take it under PAYE from your earnings..  So what they do is to fiddle with the earnings estimates so that it gets roughly the right answer at the end.