Simultaneous tax code refund + deduction?

r6mile

Hello,

You may have seen that the government are looking at having HICBC being collected via tax codes, rather than through a self assessment, which is very welcome.

In the absence of having submitted a self assessment, how would HMRC handle a situation where say you were due £150 (due to HR pension tax relief), but also had £200 to pay in HICBC (because of interest earnings). Would one be deducted from the other, so that you then would pay an extra £50 via your tax code?

Dazed_and_C0nfused

r6mile said:

Hello,

You may have seen that the government are looking at having HICBC being collected via tax codes, rather than through a self assessment, which is very welcome.

In the absence of having submitted a self assessment, how would HMRC handle a situation where say you were due £150 (due to HR pension tax relief), but also had £200 to pay in HICBC (because of interest earnings). Would one be deducted from the other, so that you then would pay an extra £50 via your tax code?

You can already pay towards any HICBC via your tax code now if you wish.

But at the moment things have to be finalised via a Self Assessment return.  I think the proposed change is really about doing away with the need for a tax return to be completed simply because there is (or might be) a High Income Child Benefit Charge.

As far as your scenario is concerned you would have two independent tax code entries.

Extra tax code allowances for the pension relief and also a tax code deduction to collect some extra tax towards the HICBC.  All of which is only ever provisional, it will still have to be reviewed once the tax year ends.

r6mile

Thank you - a quick follow up.

Say my earnings as shown on my P60 were £50,200 (and my wife earns £10,000). But I earn £600 of savings interest.

1) will this mean that I am a basic rate taxpayer, and therefore eligible for marriage allowance and my savings interest falls within the basic rate PSA?
2) as my ANI is £50,800, I will have a HICBC liability of 8% of my child benefit?

Dazed_and_C0nfused

r6mile said:

Thank you - a quick follow up.

Say my earnings as shown on my P60 were £50,200 (and my wife earns £10,000). But I earn £600 of savings interest.

1) will this mean that I am a basic rate taxpayer, and therefore eligible for marriage allowance and my savings interest falls within the basic rate PSA?
2) as my ANI is £50,800, I will have a HICBC liability of 8% of my child benefit?

1.  No, although the first £500 will be taxed at 0% most of that will fall within the higher rate band.  And £30 will be taxed at 40%.

2.  Yes.

There is one option for revising this but it depends on whether you have filed your 2022-23 tax return yet?

r6mile

Thank you, I guess I am confused about how the 0% PSA interacts within the higher rate band? So say savings interest was £400 - even if I am within the 0% PSA I would count as a HR taxpayer? And therefore lose marriage allowance?

This is not about the 22/23 return, more about planning for 23/24.

Dazed_and_C0nfused

AIUI you calculate your liability ignoring the savings nil rate band and that determines whether you get £0, £500 or £1,000.

You then include the appropriate amount to calculate your actual liability.  But it sits within the basic or higher rate bands, effectively using some of them up.

Marriage Allowance is based on the actual tax rates you are charged so providing no 40% tax (or equivalent dividend rate) was charged you should be eligible for Marriage Allowance.

Earnings of £50,200 and interest of £400 would mean you got £500 savings nil rate band but would not actually pay any higher rate tax.  You would have a small HICBC liability.

It is slightly different for dividend income, dividends which would be charged at higher rate if it weren't for the dividend nil rate band (aka Dividend Allowance) prevent someone from being eligible for Marriage Allowance.

r6mile

Thank you that is a lot clearer.

(PS: What a ridiculously complicated tax system of overlapping but distinct allowances!)