investment bond - top slicing - tax due

JeffMason

Jeremy535897 said:

This article gives chapter and verse in the final example, and explains that the personal allowance should be restored. The article is dated March 2021 (latest update), and so it seems that HMRC have failed to keep their promise of updating 2020/21 software to deal with this:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/top-slicing-relief-facts/
Agent Update 79 (referred to above) is here (see pages 4 and 5):
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/908453/Agent_Update_-_issue_79.pdf
See also: https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm3820
https://www.gov.uk/government/publications/changes-to-top-slicing-relief-on-life-insurance-policy-gains-from-11-march-2020/changes-to-top-slicing-relief-on-life-insurance-policy-gains-from-11-march-2020

I have not come across it personally. Trying to telephone HMRC on an issue of this complexity is unrealistic. A paper return is out of time unfortunately. The best thing I can suggest you do is as purdeyoaten2 suggests, but also refer in the "any other information" box to all the documents above (except the pruadviser one). Another option would be to use HMRC approved commercial software, but I cannot say which software would correctly deal with the issue.

Thanks Jeremy! I wouldn't know where to begin with HMRC approved commercial software, but will include all these reference points in the additional information. 

JeffMason

purdyoaten2 said:

Great advice as always from Jeremy. Personally it is my view that, if you have to use the additional information box, provide as much information as possible. 

The final link provided by Jeremy is excellent as it is the HMRC’s own internal manual on this.

To the op - what is the tax code on your P60. The tax is out by a small amount - £13.80. Did you claim any expenses? 

My tax code is: 1256L 
And no, I didn't claim any expenses at all!

[Deleted User]

JeffMason said:

purdyoaten2 said:

Great advice as always from Jeremy. Personally it is my view that, if you have to use the additional information box, provide as much information as possible. 

The final link provided by Jeremy is excellent as it is the HMRC’s own internal manual on this.

To the op - what is the tax code on your P60. The tax is out by a small amount - £13.80. Did you claim any expenses? 

My tax code is: 1256L 
And no, I didn't claim any expenses at all!

There are fixed rate expenses in your code number. Are you a labourer perhaps? Check your self assessment again - on the right hand side you should be able to view your tax code notices for 202021- expenses of 60 or so should be included. You need to claim this amount in the employment section on the return as they have been granted. Come back to us.

Jeremy535897

Just to clarify, there are two separate links that I should have spaced apart. The manual is at
https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm3820

GOV.UK statement is at:
https://www.gov.uk/government/publications/changes-to-top-slicing-relief-on-life-insurance-policy-gains-from-11-march-2020/changes-to-top-slicing-relief-on-life-insurance-policy-gains-from-11-march-2020

I suggest you refer to both. As purdeyoaten2 says, more is better.

If you use HMRC's software and it throws up this underpayment, to avoid a demand for the tax you don't owe, presumably you will have to add it in the tax paid for the year section, and you will have to explain that is how you have dealt with it. Perhaps @purdeyoaten2 would comment. You need to get to the bottom of the £13.80.

HMRC approved software is here:
https://www.gov.uk/government/publications/self-assessment-commercial-software-suppliers/self-assessment-online-commercial-software-suppliers

Agent Update 83 said:

"Top Slicing Relief fully automated approach on life insurance policy gains

The Top Slicing Relief fully automated approach on life insurance policy gains is active from 6 April 2021.

HMRC is working to make sure all affected customers from 2018 to 2019 onwards receive all the relief they’re entitled to.

Recalculation of reduced personal allowances

The new measure acts to change how we treat the personal allowance in the calculation of Top Slicing Relief.

We’re not changing how we calculate any other relief, allowance or rate, such as the Savings nil rates.

Beneficial ordering

The measure provides clarification on beneficial ordering of the personal allowance within the Top Slicing Relief calculation. It confirms that allowances must be set, as far as possible, against other income in preference to the gain. This makes sure that personal allowance cannot be used twice in the tax year, which would lead too much relief being claimed.

This is not a change of policy. The relief calculation has always applied this method, otherwise the calculation would produce excessive relief, or would allow relief to taxpayers who are not entitled to it.

The impacts on each year

Of the 45,000 customers who incur gains, HMRC estimate that 2,000 will benefit from these changes.

Outcomes of 2018 to 2019 auto-recovery or manual re-work

The 2018 to 2019 automated process was carried out on 28 August 2020 and included customer returns for 2018 to 2019. The returns were received by HMRC up to 9 months prior to the run date. For example, returns filed online on 28 November 2019 and later.

2018 to 2019 returns submitted under an exclusion are being manually reviewed and include customer returns for 2018 to 2019. These returns were received by HMRC up to 9 months prior (returns received on 28 November 2019 and later). If changes to the calculation of Top Slicing Relief is required, these returns are being amended.

For affected returns submitted prior to 28 November 2019, an amended return must have been submitted by 31 January 2021.

Affected customers who filed before 28 November 2019, and have not submitted an amended 2018 to 2019 return, can make a claim for overpayment relief. Find more information on overpayment relief claims.

2019 to 2020 e-Filing exclusion list

An exclusion has been added to the Self Assessment Individual Exclusions for online filing for 2019 to 2020.

Affected customers are required to complete paper returns to get the correct calculation.

No customer will receive less relief than was calculated by HMRC under the previous legislation.

2020 to 2021 onwards

From 6 April 2021, the changes have been incorporated into the Self Assessment calculator. Customers will not need to provide any extra information, and the correct amount of relief will be calculated as part of the online tax return."

That begs the question as to why there is still a problem. Tim Good is still fighting for this issue to be resolved. Unfortunately you have to subscribe to read his comments, and most of it relates to earlier years. It also appears that most commercial software simply duplicates HMRC's error.

Jeremy535897

I tried my tax return software and it got it wrong too. As to the £13.80, why is your code 1256L rather than 1250L for 2020/21?

[Deleted User]

Jeremy535897 said:

I tried my tax return software and it got it wrong too. As to the £13.80, why is your code 1256L rather than 1250L for 2020/21?

See my last post which may have crossed - I suspect flat rate expenses.

Jeremy535897

Quite possibly, and it's about what you'd expect at 20% and the code rounding, so OP needs to check that as it needs to go on the tax return. I use Andica, and put in the numbers OP gave (I used £85,000 gain and £27,500 earnings), and it halved the personal allowance.

[Deleted User]

Jeremy535897 said:

Quite possibly, and it's about what you'd expect at 20% and the code rounding, so OP needs to check that as it needs to go on the tax return. I use Andica, and put in the numbers OP gave (I used £85,000 gain and £27,500 earnings), and it halved the personal allowance.

Yes - see my post at 3.53pm today.

JeffMason

[Deleted User] said:

JeffMason said:

purdyoaten2 said:

Great advice as always from Jeremy. Personally it is my view that, if you have to use the additional information box, provide as much information as possible. 

The final link provided by Jeremy is excellent as it is the HMRC’s own internal manual on this.

To the op - what is the tax code on your P60. The tax is out by a small amount - £13.80. Did you claim any expenses? 

My tax code is: 1256L 
And no, I didn't claim any expenses at all!

There are fixed rate expenses in your code number. Are you a labourer perhaps? Check your self assessment again - on the right hand side you should be able to view your tax code notices for 202021- expenses of 60 or so should be included. You need to claim this amount in the employment section on the return as they have been granted. Come back to us.

Nope. I teach at a university. Fully PAYE. I used to work freelance before taking this job though, and have not closed my self assessment account as there was always a chance I would do more freelance work. But haven't done any since 2016 now. Could that have anything to do with it?

Dazed_and_C0nfused

If you aren't claiming any employment related expenses and your tax code continues to include these (assuming that's what the extra £60 tax code allowances actually is) then you will end up owing money each year so the simplest thing to do would be to ask HMRC to remove them from your code as soon as possible.

You can check the exact make up of your tax code on your Personal Tax Account.