Tax Thresholds - Flexible?

RG2015

Thanks @Dazed_and_C0nfused,

Tax at the margins is even more challenging. A bit like a black hole event horizon.

I do believe that I am getting there though.

Dazed_and_C0nfused

RG2015 said:

Thanks @Dazed_and_C0nfused,

Tax at the margins is even more challenging. A bit like a black hole event horizon.

I do believe that I am getting there though.

Hopefully the op will join you there in due course 😂

MrMoff

Dazed_and_C0nfused said:

So far you haven't provided an example where your Personal Allowance is anything other than £12,570.

Receipt of Marriage Allowance does not change your Personal Allowance.  Owing some tax does not change your Personal Allowance.  Having (untaxed at source) State Pension does not change your Personal Allowance.

Until you grasp the difference between the Personal Allowance and your tax code allowances you will never understand this.

D and C,

Yes I understand the Personal Allowance bit, and the tax code bit, which is why I changed my original question to say Tax free Amount. Admittedly all 3 are very different, but intrinsically linked.
My own personal Tax Free Amount is my Personal Allowance plus my Marriage Allowance (or any other Additional Allowance for that matter)
The very nice man at HMRC on the phone yesterday advised me that I was indeed eligible and hence my Tax Free Amount, the amount I can earn before I pay Tax, was actually £13,830
Which meant that for me, personally, my HR threshold did not start until £51,530 ( £13,830 + £37,700)

And this is very handy figure to know, if I want to try and avoid paying 40% on any earnings.

Dazed_and_C0nfused

MrMoff said:

Dazed_and_C0nfused said:

So far you haven't provided an example where your Personal Allowance is anything other than £12,570.

Receipt of Marriage Allowance does not change your Personal Allowance.  Owing some tax does not change your Personal Allowance.  Having (untaxed at source) State Pension does not change your Personal Allowance.

Until you grasp the difference between the Personal Allowance and your tax code allowances you will never understand this.

D and C,

Yes I understand the Personal Allowance bit, and the tax code bit, which is why I changed my original question to say Tax free Amount. Admittedly all 3 are very different, but intrinsically linked.
My own personal Tax Free Amount is my Personal Allowance plus my Marriage Allowance (or any other Additional Allowance for that matter)
The very nice man at HMRC on the phone yesterday advised me that I was indeed eligible and hence my Tax Free Amount, the amount I can earn before I pay Tax, was actually £13,830
Which meant that for me, personally, my HR threshold did not start until £51,530 ( £13,830 + £37,700)

And this is very handy figure to know, if I want to try and avoid paying 40% on any earnings.

Sorry but whoever you spoke to at HMRC was talking nonsense (or you were at cross purposes)

Your tax code allowances may well be £13,830 but when you work out your tax liability you will only have a Personal Allowance of £12,570 and anything above that will be taxed.

And higher rate tax starts at £50,271, not £51,530.

In fact if you had taxable earnings of £51,530 (and nothing else to factor in like RAS pension contributions or Gift Aid) you wouldn't be eligible for Marriage Allowance.

Earnings of £51,530 with tax code 1383M would result in PAYE tax deduction of £7,538.20.

Your actual tax liability would be,

Earnings £51,530 less Personal Allowance £12,570 = £38,960 to be taxed

£37,700 x 20% = £7,540
£1,260 x 40% = £504
Total tax liability = £8,044
NB.  No tax deduction for Marriage Allowance as higher rate tax is due.

Tax deducted under PAYE £7,538.20

Tax underpaid £505.80

MrMoff

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

So far you haven't provided an example where your Personal Allowance is anything other than £12,570.

Receipt of Marriage Allowance does not change your Personal Allowance.  Owing some tax does not change your Personal Allowance.  Having (untaxed at source) State Pension does not change your Personal Allowance.

Until you grasp the difference between the Personal Allowance and your tax code allowances you will never understand this.

D and C,

Yes I understand the Personal Allowance bit, and the tax code bit, which is why I changed my original question to say Tax free Amount. Admittedly all 3 are very different, but intrinsically linked.
My own personal Tax Free Amount is my Personal Allowance plus my Marriage Allowance (or any other Additional Allowance for that matter)
The very nice man at HMRC on the phone yesterday advised me that I was indeed eligible and hence my Tax Free Amount, the amount I can earn before I pay Tax, was actually £13,830
Which meant that for me, personally, my HR threshold did not start until £51,530 ( £13,830 + £37,700)

And this is very handy figure to know, if I want to try and avoid paying 40% on any earnings.

Sorry but whoever you spoke to at HMRC was talking nonsense (or you were at cross purposes)

Your tax code allowances may well be £13,830 but when you work out your tax liability you will only have a Personal Allowance of £12,570 and anything above that will be taxed.

And higher rate tax starts at £50,271, not £51,530.

In fact if you had taxable earnings of £51,530 (and nothing else to factor in like RAS pension contributions or Gift Aid) you wouldn't be eligible for Marriage Allowance.

Earnings of £51,530 with tax code 1383M would result in PAYE tax deduction of £7,538.20.

Your actual tax liability would be,

Earnings £51,530 less Personal Allowance £12,570 = £38,960 to be taxed

£37,700 x 20% = £7,540
£1,260 x 40% = £504
Total tax liability = £8,044
NB.  No tax deduction for Marriage Allowance as higher rate tax is due.

Tax deducted under PAYE £7,538.20

Tax underpaid £505.80

D and C,

I completely understand your figures etc, and I understand that I am not entitled to Marriage Allowance if my overall gross taxable income is above £50,270, However My Gross Taxable income was less then £50,270 and therefore I was granted it, that was confirmed by HMRC yesterday.

But for tax calculation purposes the £50,270 is a very misleading figure. Although yet again I completely admit it is probably standard for 95% of the tax paying population of England, Wales and NI.

However to explain where I get my conclusions from I feel I must refer back to the HMRC Web Page.

It States - 40% on "Income after Allowances" earnings between £37,701 to £125,140

and since my Allowance is £13,830, I would not hit that HR threshold until my own personal taxable income exceeds £51,530

That's the advice I got yesterday and if its wrong and I was told porkies, I'm doing to drive down to HMRC and kick off lol

Dazed_and_C0nfused

MrMoff said:

Dazed_and_C0nfused said:

MrMoff said:

Dazed_and_C0nfused said:

So far you haven't provided an example where your Personal Allowance is anything other than £12,570.

Receipt of Marriage Allowance does not change your Personal Allowance.  Owing some tax does not change your Personal Allowance.  Having (untaxed at source) State Pension does not change your Personal Allowance.

Until you grasp the difference between the Personal Allowance and your tax code allowances you will never understand this.

D and C,

Yes I understand the Personal Allowance bit, and the tax code bit, which is why I changed my original question to say Tax free Amount. Admittedly all 3 are very different, but intrinsically linked.
My own personal Tax Free Amount is my Personal Allowance plus my Marriage Allowance (or any other Additional Allowance for that matter)
The very nice man at HMRC on the phone yesterday advised me that I was indeed eligible and hence my Tax Free Amount, the amount I can earn before I pay Tax, was actually £13,830
Which meant that for me, personally, my HR threshold did not start until £51,530 ( £13,830 + £37,700)

And this is very handy figure to know, if I want to try and avoid paying 40% on any earnings.

Sorry but whoever you spoke to at HMRC was talking nonsense (or you were at cross purposes)

Your tax code allowances may well be £13,830 but when you work out your tax liability you will only have a Personal Allowance of £12,570 and anything above that will be taxed.

And higher rate tax starts at £50,271, not £51,530.

In fact if you had taxable earnings of £51,530 (and nothing else to factor in like RAS pension contributions or Gift Aid) you wouldn't be eligible for Marriage Allowance.

Earnings of £51,530 with tax code 1383M would result in PAYE tax deduction of £7,538.20.

Your actual tax liability would be,

Earnings £51,530 less Personal Allowance £12,570 = £38,960 to be taxed

£37,700 x 20% = £7,540
£1,260 x 40% = £504
Total tax liability = £8,044
NB.  No tax deduction for Marriage Allowance as higher rate tax is due.

Tax deducted under PAYE £7,538.20

Tax underpaid £505.80

D and C,

I completely understand your figures etc, and I understand that I am not entitled to Marriage Allowance if my overall gross taxable income is above £50,270, However My Gross Taxable income was less then £50,270 and therefore I was granted it, that was confirmed by HMRC yesterday.

But for tax calculation purposes the £50,270 is a very misleading figure. Although yet again I completely admit it is probably standard for 95% of the tax paying population of England, Wales and NI.

However to explain where I get my conclusions from I feel I must refer back to the HMRC Web Page.

It States - 40% on "Income after Allowances" earnings between £37,701 to £125,140

and since my Allowance is £13,830, I would not hit that HR threshold until my own personal taxable income exceeds £51,530

That's the advice I got yesterday and if its wrong and I was told porkies, I'm doing to drive down to HMRC and kick off lol

You just don't get it do you.

Your tax code allowance are £13,830.  But a tax code is just a provisional attempt to try and collect the correct tax during the year.

Your Personal Allowance, and in this scenario, your only tax free amount, is £12,570.  Your Personal Allowance can never be more than £12,570.

When your income tax liability is calculated after the end of the tax year you will only be entitled to a Personal Allowance of £12,570.  Not £13,830.

Maybe if you look at the example of Marjorie here you will understand where you are going wrong.

https://www.litrg.org.uk/tax-nic/income-tax/tax-allowances/marriage-allowance-transferable-tax-allowance

Ocelot

BoGoF said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

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, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

If your tax free allowance is 3,000 (reduced from 12570), add 37,700 to it to get 40,700. 37,700 is taxed at 20%, everything over 40,700 is taxed at 40%, surely?

CrickJon

£37,700 is just the typical example for people who have the full PA of £12,570.

If your PA is £3,000, then you would be taxed at 20% on earnings on or below £50,270 and £3,000 and 40% on earnings over £50,270.

That's my understanding anyway.

Dazed_and_C0nfused

Ocelot said:

BoGoF said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

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, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

If your tax free allowance is 3,000 (reduced from 12570), add 37,700 to it to get 40,700. 37,700 is taxed at 20%, everything over 40,700 is taxed at 40%, surely?

It all depends why your tax code allowances are 3,000.

Your employer/pension payer may need to deduct some 40% tax during the year but that doesn't mean you would be charged 40% tax when things were reviewed after the end of the tax year.

BoGoF

I defy anyone to say that regardless of their tax code during the year that their tax calculation (if they get one) shows a standard personal allowance and that higher rate tax doesn't start until at least £50,270 - unless you pay Scottish rates of tax where the HR threshold is lower. The only other exception is where you have transferred personal allowance to spouse. Oh, and also income under £100k.