Tax Thresholds - Flexible?

amanda1024

HMRC has 3 scenarios when the Personal Allowance might change:

The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on.

Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.

https://www.gov.uk/income-tax-rates

But that's different to tax codes, which can change for other reasons - such as to take account of tax reliefs (like charitable giving), or because tax is owed from a previous year

eskbanker

MrMoff said:
They are NOT giving me my full Personal Allowance for a previous year, they are reducing it because of an underpayment.

No, they're calibrating your PAYE coding notice to collect underpaid tax from a previous year - this doesn't actually change your personal allowance, so when you see your final year-end tax calculation, the starting point for that will be a full personal allowance.

RG2015

RG2015 said:

MrMoff said:

BoGoF said:

MrMoff said:

BoGoF said:

MrMoff said:

BoGoF said:

When calculating your tax for any given year you will always get the benefit of your full personal allowance and things that were included in your tax code will be shown separately in the calc

They seem to have reduced my PTA because I owed them a certain amount from a previous year

And as I said that's irrelevant for the purposes of HR threshold.

But Surely it does matter for my HR Threshold?

Because if my PTA reduces then surely my HR threshold reduces

As in my example, if my PTA has been reduced to say £9,000 then if you add the amount which is i would get taxed at 20% which is currently set at £37,770 then my HR threshold would start at £46,770 and not the standard £50,270.

Surely not. Did you read what else I said about a tax calculation?

BoGoF, yes I read your bit about tax calculation,  but sorry but that's not what the HMRC are saying to me.

They are NOT giving me my full Personal Allowance for a previous year, they are reducing it because of an underpayment.

My previous post gave an example of an addition (the marriage allowance) but the principle remains true for a deduction. This will reduce your tax free amount and tax code but not your personal allowance.

Therefore higher rate will always kick in at £50,270 of taxable income.

Apologies for deviating from the primary question from the OP but I am questioning my comment highlighted above.

If I earn more than £50,270 and receive the marriage allowance from my wife, will I pay still 40% on any earnings above £50,270? This is assuming I remain well below the additional rate threshhold.

MrMoff

Dazed_and_C0nfused said:

You are getting confused between your Personal Allowance, which with the exception of people with very high income, will be either £11,310 or £12,570, and your tax code allowances.

Your Personal Allowance can never be more than £12,570 and owing tax from a previous tax year does not change your Personal Allowance.

D and C, and BoGoF

Yes I see where you are coming from now.

The term "Personal Allowance" should not be confused with "Tax Free Amount"

Both are very different, one is fixed as you say and the other fluctuates dependant on various reliefs, add ons etc and/or underpayments from a previous Tax Year.

So if I can be so bold and apologise for the confusion I have caused and amend my previous questions and ask which of the following are correct.

Example 1 - My Tax Free Amount is £16,500

I pay no tax on the first £16,500 of my combined income.
I pay 20% tax on £33,770 (£16,500 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £16,500 of my combined income.
I pay 20% Tax on the next £37,700 over the £16,500.
And then 40% on anything over £54,200? (£16,500+£37,700)

Conversely, if I have a reduced Tax Free amount than normal,

Example 2 -  My Tax free Amount is £9,000
I pay no tax on the first £9,000 of my combined Income.
I would then pay 20% tax on the first £37,700 over the £9,000
And then pay 40% on anything over £46,770 (£9,000 + £37,700)

Dazed_and_C0nfused

MrMoff said:

Dazed_and_C0nfused said:

You are getting confused between your Personal Allowance, which with the exception of people with very high income, will be either £11,310 or £12,570, and your tax code allowances.

Your Personal Allowance can never be more than £12,570 and owing tax from a previous tax year does not change your Personal Allowance.

D and C, and BoGoF

Yes I see where you are coming from now.

The term "Personal Allowance" should not be confused with "Tax Free Amount"

Both are very different, one is fixed as you say and the other fluctuates dependant on various reliefs, add ons etc and/or underpayments from a previous Tax Year.

So if I can be so bold and apologise for the confusion I have caused and amend my previous questions and ask which of the following are correct.

Example 1 - My Tax Free Amount is £16,500

I pay no tax on the first £16,500 of my combined income.
I pay 20% tax on £33,770 (£16,500 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £16,500 of my combined income.
I pay 20% Tax on the next £37,700 over the £16,500.
And then 40% on anything over £54,200? (£16,500+£37,700)

Conversely, if I have a reduced Tax Free amount than normal,

Example 2 -  My Tax free Amount is £9,000
I pay no tax on the first £9,000 of my combined Income.
I would then pay 20% tax on the first £37,700 over the £9,000
And then pay 40% on anything over £46,770 (£9,000 + £37,700)

No one can answer that without knowing how you have derived those "tax free" amounts.

For example receiving Marriage Allowance does not give you any extra tax free amount.  It knocks £252 off your tax liability.

MrMoff

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

You are getting confused between your Personal Allowance, which with the exception of people with very high income, will be either £11,310 or £12,570, and your tax code allowances.

Your Personal Allowance can never be more than £12,570 and owing tax from a previous tax year does not change your Personal Allowance.

D and C, and BoGoF

Yes I see where you are coming from now.

The term "Personal Allowance" should not be confused with "Tax Free Amount"

Both are very different, one is fixed as you say and the other fluctuates dependant on various reliefs, add ons etc and/or underpayments from a previous Tax Year.

So if I can be so bold and apologise for the confusion I have caused and amend my previous questions and ask which of the following are correct.

Example 1 - My Tax Free Amount is £16,500

I pay no tax on the first £16,500 of my combined income.
I pay 20% tax on £33,770 (£16,500 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £16,500 of my combined income.
I pay 20% Tax on the next £37,700 over the £16,500.
And then 40% on anything over £54,200? (£16,500+£37,700)

Conversely, if I have a reduced Tax Free amount than normal,

Example 2 -  My Tax free Amount is £9,000
I pay no tax on the first £9,000 of my combined Income.
I would then pay 20% tax on the first £37,700 over the £9,000
And then pay 40% on anything over £46,770 (£9,000 + £37,700)

No one can answer that without knowing how you have derived those "tax free" amounts.

For example receiving Marriage Allowance does not give you any extra tax free amount.  It knocks £252 off your tax liability.

D and C,

I understand what you say however the Tax Free Amounts I use are just an example, it is principle of the calculation method which I have questions about.

I can amend it to reflect the normal Marriage Allowance as a further example.

Example 1 - My Tax Free Amount is £13,830

I pay no tax on the first £13,830 of my combined income.
I pay 20% tax on £36,440 (£13,830 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £13,830 of my combined income.
I pay 20% Tax on the next £37,700 over the £13,830.
And then 40% on anything over £51,530? (£13,830+£37,700)

Dazed_and_C0nfused

MrMoff said:

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

You are getting confused between your Personal Allowance, which with the exception of people with very high income, will be either £11,310 or £12,570, and your tax code allowances.

Your Personal Allowance can never be more than £12,570 and owing tax from a previous tax year does not change your Personal Allowance.

D and C, and BoGoF

Yes I see where you are coming from now.

The term "Personal Allowance" should not be confused with "Tax Free Amount"

Both are very different, one is fixed as you say and the other fluctuates dependant on various reliefs, add ons etc and/or underpayments from a previous Tax Year.

So if I can be so bold and apologise for the confusion I have caused and amend my previous questions and ask which of the following are correct.

Example 1 - My Tax Free Amount is £16,500

I pay no tax on the first £16,500 of my combined income.
I pay 20% tax on £33,770 (£16,500 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £16,500 of my combined income.
I pay 20% Tax on the next £37,700 over the £16,500.
And then 40% on anything over £54,200? (£16,500+£37,700)

Conversely, if I have a reduced Tax Free amount than normal,

Example 2 -  My Tax free Amount is £9,000
I pay no tax on the first £9,000 of my combined Income.
I would then pay 20% tax on the first £37,700 over the £9,000
And then pay 40% on anything over £46,770 (£9,000 + £37,700)

No one can answer that without knowing how you have derived those "tax free" amounts.

For example receiving Marriage Allowance does not give you any extra tax free amount.  It knocks £252 off your tax liability.

D and C,

I understand what you say however the Tax Free Amounts I use are just an example, it is principle of the calculation method which I have questions about.

I can amend it to reflect the normal Marriage Allowance as a further example.

Example 1 - My Tax Free Amount is £13,830

I pay no tax on the first £13,830 of my combined income.
I pay 20% tax on £36,440 (£13,830 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £13,830 of my combined income.
I pay 20% Tax on the next £37,700 over the £13,830.
And then 40% on anything over £51,530? (£13,830+£37,700)

Neither as Marriage Allowance does not give you any extra tax free amount.

You pay no tax on the first £12,570.

You pay 20% on the next £37,700.

You pay 40% above that (and then 45% if you are lucky 😉).

Then you knock £252 off what ever the total liability is (the Marriage Allowance credit).

The above assumes the income is all non savings non dividend income such as earnings or pension (so none of the 0% rates are relevant).

spider42

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

You are getting confused between your Personal Allowance, which with the exception of people with very high income, will be either £11,310 or £12,570, and your tax code allowances.

Your Personal Allowance can never be more than £12,570 and owing tax from a previous tax year does not change your Personal Allowance.

D and C, and BoGoF

Yes I see where you are coming from now.

The term "Personal Allowance" should not be confused with "Tax Free Amount"

Both are very different, one is fixed as you say and the other fluctuates dependant on various reliefs, add ons etc and/or underpayments from a previous Tax Year.

So if I can be so bold and apologise for the confusion I have caused and amend my previous questions and ask which of the following are correct.

Example 1 - My Tax Free Amount is £16,500

I pay no tax on the first £16,500 of my combined income.
I pay 20% tax on £33,770 (£16,500 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £16,500 of my combined income.
I pay 20% Tax on the next £37,700 over the £16,500.
And then 40% on anything over £54,200? (£16,500+£37,700)

Conversely, if I have a reduced Tax Free amount than normal,

Example 2 -  My Tax free Amount is £9,000
I pay no tax on the first £9,000 of my combined Income.
I would then pay 20% tax on the first £37,700 over the £9,000
And then pay 40% on anything over £46,770 (£9,000 + £37,700)

No one can answer that without knowing how you have derived those "tax free" amounts.

For example receiving Marriage Allowance does not give you any extra tax free amount.  It knocks £252 off your tax liability.

D and C,

I understand what you say however the Tax Free Amounts I use are just an example, it is principle of the calculation method which I have questions about.

I can amend it to reflect the normal Marriage Allowance as a further example.

Example 1 - My Tax Free Amount is £13,830

I pay no tax on the first £13,830 of my combined income.
I pay 20% tax on £36,440 (£13,830 to £50,270)
and then 40% on anything over £50,270 ?

Or is it --- 

I pay no tax on the first £13,830 of my combined income.
I pay 20% Tax on the next £37,700 over the £13,830.
And then 40% on anything over £51,530? (£13,830+£37,700)

Neither as Marriage Allowance does not give you any extra tax free amount.

You pay no tax on the first £12,570.

You pay 20% on the next £37,700.

You pay 40% above that (and then 45% if you are lucky 😉).

Then you knock £252 off what ever the total liability is (the Marriage Allowance credit).

The above assumes the income is all non savings non dividend income such as earnings or pension (so none of the 0% rates are relevant).

Except that Marriage Allowance transfers are only possible if both spouses pay no more than basic rate tax. So in the example given, if any tax is being paid at 40%, then the £252 wouldn't get deducted at all, as a Marriage Allowance transfer would not be valid in the first place.

Ocelot

BoGoF said:

MrMoff said:

BoGoF said:

MrMoff said:

BoGoF said:

When calculating your tax for any given year you will always get the benefit of your full personal allowance and things that were included in your tax code will be shown separately in the calc

They seem to have reduced my PTA because I owed them a certain amount from a previous year

And as I said that's irrelevant for the purposes of HR threshold.

But Surely it does matter for my HR Threshold?

Because if my PTA reduces then surely my HR threshold reduces

As in my example, if my PTA has been reduced to say £9,000 then if you add the amount which is i would get taxed at 20% which is currently set at £37,770 then my HR threshold would start at £46,770 and not the standard £50,270.

Surely not. Did you read what else I said about a tax calculation?

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot

eskbanker said:

Personal tax allowances don't get increased above the standard figure, so the question is moot - there are various allowances and reliefs that may reduce tax liability, but the PTA itself doesn't change, so you'd need to clarify your scenario in more detail in order to determine potential tax liabilities....

I thought moot meant debatable.