2023 2024 tax return - first time. Not adding up. Please help.

Nabla

Hi,

I'm completing my first UK self-assessment tax return for 23/24 tax year.

During this time, I was employed by a single employer, who processed the payroll, and provided me a P60 at the end of the year. They called me a "contractor", but the way they managed my payments was in-line with a permanent employee on PAYE. Therefore, I did not complete a "self-employed" section on the assessment form, only the "employee" section. My tax code on P60 is "K6".

During the tax year my total gross pay was £124,653.00

I paid off my student loan (plan 1) a few months into the year, paying a total of £4042.00 towards student loan in total during the year.

This was my only deduction, before tax, so I calculate my "adjusted net income" for the year is £124,653.00 - £4042.00 = £120,611 (Taxable)

This is £20,611 above £100,000, so I calculate my tax-free personal allowance is £12,570 - (£20,611 / 2) = £2,264.5

Earnings in Basic rate from my personal allowance £2,264.5 to basic rate threshold, £50,270, are  £50,270 - £2,264.5 = £48,005.5. At 20% basic rate, this should equal £48,005.5 * 0.2 = £9,601.1

Earnings in Higher rate are £120,611 - £50271 = £70,340. At 40% higher rate, this should equal £70,340 * 0.4 = £28,236

There should be no additional rate, since my taxable (and gross) is < £125,140

Therefore, my total income tax due should be £9,601.1 + £28,236 = £37,837.10

On my P60, in "Pay and Income Tax details" sections, under "Total for year" and "In this employment" fields, it says Tax deducted:  £42348.80

This indeed equals the total income tax that I have been deducted for the tax year, when I added up the monthly deductions on my spreadsheet (from monthly pay-slips).

Therefore, I think I should be owed back from HMRC: £42,348,80 - £37,837.1 = £4,511.70

In addition, I started paying into to a personal pension for the last 3 months of the tax year, paying in total £1650.00 out of my net income (after tax). The pension provider automatically claimed tax relief only up to the basic rate, 20%, so I got some HMRC rebates, totaling  £412.50. I entered the info as requested on tax return form to claim back the tax relief up to the 40% higher earning threshold, so I calculate I should also be owed by HMRC for this: £687.50

So in total I calculate I should be owed by HMRC £4,511.70 + £687.50 = £5,199.2: 

However, after completing the tax return (not yet submitted), the breakdown of the calculation does not match the numbers above, which I know to be true, also reflected on my P60, and pension statements, and HMRC sys that I owe them (payable by 31Jan25) : £4058.80

I cannot understand how this can possibly be the case?

Please can anyone give me any pointers at all? Do my calculations above make sense?

I'm worried that if I click "submit" that I will be agreeing to their claim that I owe them, and have to cover the £4k, when in actual fact I think they owe me £5.2k. 

Dazed_and_C0nfused

Why do you think Student Loan payments are deducted when calculating your adjusted net income 🤔

You need to re-evaluate from that point on.

Nomunnofun1

Dazed_and_C0nfused said:

Why do you think Student Loan payments are deducted when calculating your adjusted net income 🤔

You need to re-evaluate from that point on.

The op also appears to have used a ‘basic rate band’ of £50270 as opposed to £37700, notwithstanding the error on the personal allowance, which should be close to zero. 

Also not entirely sure how the higher rate relief on the pension contribution has been calculated. 

Nabla

Hi Both, thanks for the replies.

I thought that student loan re-payment was not taxable, so is deducted from gross before calculating any tax paid? (like workplace pension contribution). Is it actually taxable? How should I correct my calculation?

The £50270 I got from the UK gov website, for England for 23/24 tax year: https://www.gov.uk/income-tax-rates

Where does the £37700 come from?

Is there an equation / set of equations I can find to calculate this?

I also used an online 'tax calculator', and it gave similar results to what I calculated, but there seems to be a massive discrepancy with what HMRC are now asking me to pay.

The higher rate relief on the pension contribution was calculated as: 

[(my contributions paid ) / (100-20) ]*100 = [£1650.00 / 80] * 100 = £2062.50

This is the formula given on the tax return form, and the answer equals all the sum of all contributions I made plus the sum of HMRC rebates at the basic rate: £2062.50. This is the total paid into my pension pot in the tax year.

I calculated what it should be at the higher rate using the following:

[(my contributions paid ) / (100-40) ]*100 = [£1650.00 / 60] * 100 = £2750.00
Then: £2750.00 - £2062.50 = £687.5

Thanks.

Nomunnofun1

One normally starts to pay higher rate tax at income over 50270. 

That equates to the personal allowance of 12570 plus the basic rate band of 37700. 

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

In your case you would pay higher rate tax on income over 37700 plus whatever remains of your personal allowance - this will be extended by the grossed up personal pension contribution - in your case £39763 - see below. 

You will, therefore, pay 40% on income over your remaining personal allowance plus 37700 plus 2063.

Your reasoning on the personal pension relief is interesting but not correct. 

You paid £1650 which, as you say, is grossed up to £2063 (rounded). Effectively you have contributed £2063 and received tax relief of 20% meaning that it actually cost you £1650 (80% of £2063 is £1650).

You are due relief at 40%, however, and can claim an additional 20% of £2063 which is £412.60. 

Nabla

Thank you,

It's confusing, because they give different numbers on the two different web pages linked above, but going by the link you gave, looks like the numbers are closer to what you stated.

Here is the calculation HMRC provided me at the end of my tax return:



£42,348.80 was indeed the amount of income tax I paid during the tax year.

As you say they increased the basic rate limit by £2063 for the pension contributions + 20% tax relief. 

There's a few things I still don't get though:

1. My student loan total repayments during the year were £4042 (as stated on my P60, and checked from my payslips). I don't understand why they are stating it is £5,009. 
2. Why have they ADDED £5009 student loan repayments onto the amount of tax I owe? (£41398.60 + £5009 = £46,407.6) ...doesn't this mean I am being charged AGAIN for the student loan repayment, that I have already made? This seems to be the biggest error that is causing me to owe them money, and it just doesn't make sense at all.
3. How does increasing the basic rate limit by £2063 (the pension contributions + 20% tax relief), give me the additional 20% relief to make up the 40% relief?
4.  I thought student loan repayment was not taxable, so shouldn't the £4042 I paid, be deducted from my gross pay (£124,653), to give £120,611 taxable income?
5. From my taxable income, should I not still have some personal allowance as per below table from the link you gave? If my taxable is £120,611, then I should have an allowance of: £12,570 - [(£120,611 - £100,000) / 2] = £2264.50. Even if this is calculated from Gross, then I should have some allowance: £12,570 - [(£124,653 - £100,000) / 2] = £243.50

Dazed_and_C0nfused

1.  Because the tax return is more accurate.  Your employer can only make deductions based on the income they are paying you.

2.  Have you followed the detailed guidance here?
https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-return

3.  You pay more tax at 20% and less at 40%.  That is how it works for relief at source contributions (those where you pay a net amount and basic rate relief is added by the pension company).  The gross contribution is also deducted when calculating your adjusted net income.  So you could well have received more than 40% relief in total.

4.  Student loan repayments are not "taxable".  But equally they are not deducted when calculating either your taxable income or adjusted net income.

5.  You have a fundamental misunderstanding over how adjusted net income is calculated.  What is your total taxable income?  What does your calculation show your Personal Allowance as (I think it is just above the screen snip you have shown near the start of your latest post)?

zagfles

The income tax is all correct, as above you need to understand how ANI is calculated. You deduct gross RAS pension conts (net divided by 0.8), but not student loan repayments. 

So ANI is 124653-1650/0.8 = 122590 so PA is 12570-11295=1275.
BR band is 37700+1650/0.8 = 39763
So HR tax on 124653-1275-39763 = 83615
Which is what's shown above. 

Student loan is wrong as they're not taking account it's paid off, this is what you need to query. The 5009 comes from what they think you should have paid ie (122590 minus the threshold 22015) * 0.09 = 9051 from what you actually paid 4042. 9051-4042=5009. 

Nabla

Thank you both,

Dazed and Confused:

1. The amount of student loan payments in the tax year is correct, as I checked it against my Student Loan Company statements too. 

2. Thank you, I have just read through it, but I believe I've already followed those steps as described. Here is what I put:
Section 2 "tailor your return":


Section 4 "fill in your return":


The page you linked says it will deduct this from the amount I have to repay, but in the final calculation, it has actually added it:



3/4. Ok, thanks, I think I get it now regarding these things.

5. I missed the preceding section, with the PA, but you are right it's there as follows:



Zagfles:

Many thanks for the example calculations and explanation, that is super useful! If only Gov.uk had a single webpage showing some clear equations and examples. (I now they have some resources, but seem to be spread all over).

I can see how the ANI and reduced PA is calculated. Not as I originally thought, but still I do have at least some PA as I expected.

MANY thanks for showing the student loan calculation, I can see where they have got it wrong now - they think I was still due payments for the entire year, but I actually made my final payment and cleared the loan a few months into the year.

Unfortunately, there's no option to specify this on the SA form, and I can;t find a HMRC contact number (chat is unresponsive) to query it. But they say (screenshot above), that SLC should inform them when the loan is repaid in full, so maybe I need to query SLC?

Not sure whether I answered the above questions correctly given my situation? I have been paying it for years, and this is the first time I have ever done a SA.

EDIT: I changed my above answer in the form to "No", and deleted the student loan repayment section, and now the final calculation is showing that they owe me £950, instead of me owing them £4058, which is more what I expected due to personal pension tax relief.  

Nabla

Another crazy thing:

I registered for SA before the Oct 2024 deadline to complete my 23/24 tax return. 

On the home page, it is now asking me to complete a return for 2022/2023 as well, and stating that late penalties may be due. But don't understand why it is asking me to so this? Before 23/24 date I was only on PAYE, that's why I only just registered for 23/24 tax year.



Also, in the penalties, it doesn't even mention 22/23 year, and is also asking me to make payments for 24/25 tax year, before 31 January 2025. Shouldn't the deadline for 24/25 be 31 January 2026? (since deadline for 23/24 was 31 January 2025)... I don't even have an option on my home page to fill in a 24/25 tax SA return, and wouldn't expect one, since the tax year is not even over yet until April 2025. This just doesn't make sense at all.

sheramber

Nabla said:

Another crazy thing:

I registered for SA before the Oct 2024 deadline to complete my 23/24 tax return. 

On the home page, it is now asking me to complete a return for 2022/2023 as well, and stating that late penalties may be due. But don't understand why it is asking me to so this? Before 23/24 date I was only on PAYE, that's why I only just registered for 23/24 tax year.



Also, in the penalties, it doesn't even mention 22/23 year, and is also asking me to make payments for 24/25 tax year, before 31 January 2025. Shouldn't the deadline for 24/25 be 31 January 2026? (since deadline for 23/24 was 31 January 2025)... I don't even have an option on my home page to fill in a 24/25 tax SA return, and wouldn't expect one, since the tax year is not even over yet until April 2025. This just doesn't make sense at all.

https://www.gov.uk/understand-self-assessment-bill/payments-on-account