Have HMRC made an error on my tax owed?

HUMBUG

I'm just about to write to HMRC as they claim I owe them £91.35 (see below )  but I think they have failed to take into account my unused 'Basic Personal Tax Allowance'. Also unsure whether they have taken into account my £1000 Personal Savings Allowance.

My online tax calculation for 2023/24 says the following:

Income

Company Pension :  £11080.20
Untaxed Interest: £6092.00
Dividends Income: £2013.00
Investment Income: £31.00
Total = £19216.20

Less Your Allowances

Personal Allowance (Tapered If Appropriate) : £12570
Total Tax Free Amount : £12570
Your Total Taxable Income : £6646.20

Income Tax rate(s)

Starting Rate at 0.0% on  : £4602.00
Dividends at 8.7% on : £1044.00
Income Tax = £91.35
Dividends at 0% on : £1000.00

Total:  £6646.20
Income Tax: £91.35

Adjustments 

Total Adjustments : £0.00

Result

Total Tax Payable: £91.35

Tax you have already paid : £0.00

You owe HMRC : £91.35

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The way I worked it out (which may be wrong ) is as follows:

Unused Basic Personal Allowance = £12570 - 11080.20 = £1489.80
Taxable Savings Interest =  £6092
Starting Savings Rate 0% =  -£5000.00
Personal Savings Allowance = -£1000.00
Taxable Savings Interest = £6092 -5000 -1000 = £92

Dividends Income = £2013
Investment Income = £31
Dividend Allowance = -£1000
Taxable Dividend Income = £2013+31 -1000 = £1044

I have unused 'Basic Personal Allowance' = £1489.80  which can be used to offset the £92 +£1044

Therefore, I do not owe HMRC £91:35

In fact , I have unused 'Basic Personal Allowance'  = £1489.80 - 92- 1044 = £353.80

Can anyone confirm  whether I have made a mistake in my assumptions/calculations?

Happy Xmas

mybestattempt

I'm sure others will be quick to correct me if I'm wrong but I believe
any personal allowance unused by the pension income must be set against untaxed interest to determine amount of any 0% savings starter rate:

 Untaxed interest £6092 - £1489.80 = £4602.20 taxable @ 0%

So the HMRC calculation appears to be correct.

Dazed_and_C0nfused

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

mybestattempt

Dazed_and_C0nfused said:

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

Yes, looking at this further I can see that s25 ITA 2007 requires the PA to be allocated to achieve the lowest liability.

Is there a reason why the HMRC calculation doesn't automatically allocate the PA to give the lowest liability?

HUMBUG

Dazed_and_C0nfused said:

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

Many thanks - I will send them a letter . 

Just doubted myself because I've always assumed HMRC are more likely to get the calculations correct.

Runner_Duck

If this is for the Tax Year 2024-25 I thought the Dividend Tax Allowance was reduced to £500. That's going to affect the calculation.

Dazed_and_C0nfused

Runner_Duck said:

If this is for the Tax Year 2024-25 I thought the Dividend Tax Allowance was reduced to £500. That's going to affect the calculation.

From the op,

My online tax calculation for 2023/24 says the following

HUMBUG

mybestattempt said:

Dazed_and_C0nfused said:

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

Yes, looking at this further I can see that s25 ITA 2007 requires the PA to be allocated to achieve the lowest liability.

Is there a reason why the HMRC calculation doesn't automatically allocate the PA to give the lowest liability?

I've now received a response from HMRC and they say their calculations are correct and I do owe them that £92 (exact amount £91.35).

Here is the extract from their reply but I was unaware of the bolded sentence below. I've tried searching on HMRC website to confirm whether that statement is true , but can't find anything .  Do you know whether it's correct or not?

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My Investigation

Records show the 2023-24 underpayment of tax we have charged for is correct, and is

calculated after we took into account:

• Income from Company Pension Scheme - £11,080 plus

• Bank & Building Society Interest (BBSI) of £6,092, equals £17,172, minus

• Personal Allowances of 12,570, equals £4,602 remaining

• Starter Rate for Saving of £5,000 minus £4,602, meaning all your BBSI is tax-free.

Whilst we also calculated £2,044 of UK Dividend income, you do also receive £1,000 Dividend

Allowance of £1,000, leaving a taxable amount of £1,044 which is taxed at the lower rate for

Dividends of 8.75%.

£1,044 x 8.75% = £91.35

Whilst I note you believe you are entitled to both the £5,000 Starter Rate For Savings and the

additional £1,000 Personal Saving Allowance (PSA), this is not the case.

As your income falls below the £17,570 you receive up to the £5,000 Starter Rate For Savings

Allowance. The additional £1,000 (PSA) only applies to individuals earning over £17,570.

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HUMBUG

Dazed_and_C0nfused said:

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

Do you think this HMRC reply I received is correct ?

As your income falls below the £17,570 you receive up to the £5,000 Starter Rate For Savings

Allowance. The additional £1,000 (PSA) only applies to individuals earning over £17,570.

TheSpectator

Ask HMRC if their explanation is correct then why would a Self Assessment on the exact same figures produce an answer of no tax owing......

Bookworm105

HUMBUG said:

Dazed_and_C0nfused said:

You can ask for the Personal Allowance to be allocated in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated though the remaining income (where there is any) must be taxed in this order,

Non savings non dividend income first
Interest second
Dividends last

So the op can simply ask for £92 of the PA to be allocated to the interest £1,392 to the dividend income.  If the rest is used by the pension and investment income, whatever that is, then it means £6,000 of the interest is taxed at 0%.  As is the remaining dividends.

End result, assuming no Gift Aid donations were made, is no liability.

Do you think this HMRC reply I received is correct ?

As your income falls below the £17,570 you receive up to the £5,000 Starter Rate For Savings

Allowance. The additional £1,000 (PSA) only applies to individuals earning over £17,570.

HMRC reply is wrong and is a real bone of contention at MSE towers as he's argued with them about it before 
How the starting rate for savings works - Money Saving Expert

3. Your personal savings allowance.
This is added on top of the £5,000 starting savings rate. So, if you're on a low income, you're able to earn up to £5,000 savings interest without paying tax but you'll also pay no tax on the next £1,000 of savings interest – using up your personal savings allowance.