Reconciling Self Assessment tax calculation

poppystar

I’ve just come to the end of filling in my first Self Assessment and would welcome clarification on a few points

1. There was £400 of dividend included in total income and this seems to have vanished from the final calculation. Is this because there is no tax to pay on dividends? I had assumed it would be taxed at 40% but the difference in my final figure and HMRC calculation is almost exactly 40% of the £400 so it appears it isn’t taxed? 

2. When it gives the payments on account for 24/25 these appear to each be half of the 23/24 final payment. While this appears logical they have this month increased my tax code (as much as they can) for the final months of this year to account for tax on savings interest. I was expecting either to keep the same coding or that the payments on account would reduce to reflect the higher coding. Is what they are doing usual? 

3. I’d have preferred to pay as a lump sum rather than have my net pay reduced each month and had assumed that would happen once I switched to Self Assessment from PAYE alone. Seems it doesn’t. Is there any way to get this to happen in the future?



Thanks in advance - hopefully no more questions after this! 

DRS1

Dividends aren't taxed at 40% - the higher rate is 33.75%.  But I think there is a nil rate band for the first £1000 of dividends.  I would expect that to appear in the detailed calculation though as something like £400 @ 0% = 0

As for payments on account and PAYE what boxes did you tick towards the end about how they should collect tax due - eg adjust my PAYE code?  

poppystar

That’s what I was expecting but there was no mention of the dividend amount in the calculation breakdown. It appeared in total income but then not again. The only 0% mentioned was the savings £500. 

I may not have got right to the end then. I wanted to check the calculation agreed with what I was expecting before I hit submit. Possibly that option comes later? Even so that would presumably apply to 25/26 now since we are almost at the end of 24/25 and they have already increased my tax code?

Dazed_and_C0nfused

poppystar said:

I’ve just come to the end of filling in my first Self Assessment and would welcome clarification on a few points

1. There was £400 of dividend included in total income and this seems to have vanished from the final calculation. Is this because there is no tax to pay on dividends? I had assumed it would be taxed at 40% but the difference in my final figure and HMRC calculation is almost exactly 40% of the £400 so it appears it isn’t taxed? 

2. When it gives the payments on account for 24/25 these appear to each be half of the 23/24 final payment. While this appears logical they have this month increased my tax code (as much as they can) for the final months of this year to account for tax on savings interest. I was expecting either to keep the same coding or that the payments on account would reduce to reflect the higher coding. Is what they are doing usual? 

3. I’d have preferred to pay as a lump sum rather than have my net pay reduced each month and had assumed that would happen once I switched to Self Assessment from PAYE alone. Seems it doesn’t. Is there any way to get this to happen in the future?

Thanks in advance - hopefully no more questions after this! 

1.  It might be more beneficial for your dividend income to utilise some of your Personal Allowance.  In some situations this can result in a lower overall liability.

2.  What is going on with PAYE is of no relevance when it comes to POA.  If you are confident that the 2024-25 liability will be less than the POA you are being asked to pay then you can make a claim to reduce the POA.  For example of the POA are £800 each and you think the 2024-25 liability will be say £700 (in total) then you could reduce each POA to £350.

But remember the reason for the 2024-25 liability is totally and utterly irrelevant.  If you get the claim to reduce wrong, for any reason, even say a brand new source of income, then you will be charged interest on any tax paid after the normal due date.

3.  Can you clarify exactly what you mean?  Is this a reference to POA or an update to your 2024-25 tax code?

poppystar

Dazed_and_C0nfused said:

poppystar said:

I’ve just come to the end of filling in my first Self Assessment and would welcome clarification on a few points

1. There was £400 of dividend included in total income and this seems to have vanished from the final calculation. Is this because there is no tax to pay on dividends? I had assumed it would be taxed at 40% but the difference in my final figure and HMRC calculation is almost exactly 40% of the £400 so it appears it isn’t taxed? 

2. When it gives the payments on account for 24/25 these appear to each be half of the 23/24 final payment. While this appears logical they have this month increased my tax code (as much as they can) for the final months of this year to account for tax on savings interest. I was expecting either to keep the same coding or that the payments on account would reduce to reflect the higher coding. Is what they are doing usual? 

3. I’d have preferred to pay as a lump sum rather than have my net pay reduced each month and had assumed that would happen once I switched to Self Assessment from PAYE alone. Seems it doesn’t. Is there any way to get this to happen in the future?

Thanks in advance - hopefully no more questions after this! 

1.  It might be more beneficial for your dividend income to utilise some of your Personal Allowance.  In some situations this can result in a lower overall liability.

2.  What is going on with PAYE is of no relevance when it comes to POA.  If you are confident that the 2024-25 liability will be less than the POA you are being asked to pay then you can make a claim to reduce the POA.  For example of the POA are £800 each and you think the 2024-25 liability will be say £700 (in total) then you could reduce each POA to £350.

But remember the reason for the 2024-25 liability is totally and utterly irrelevant.  If you get the claim to reduce wrong, for any reason, even say a brand new source of income, then you will be charged interest on any tax paid after the normal due date.

3.  Can you clarify exactly what you mean?  Is this a reference to POA or an update to your 2024-25 tax code?

1. My confusion is that it doesn’t seem to be anywhere in the detailed calculation at all. That shows basic rate due on pensions after personal allowance and then for savings interest it shows the £500 at 0%, then x at 20% and y@40%  where 500 +x+y adds to the total I’ve declared for savings interest. The dividend value is nowhere so it appears untaxed. Do they ignore it because no tax is due as it is under the £1k threshold?

2.  If my liability is the same for 24/25 as it was for 23/24 then I will end up paying more tax than would be due as they’ve increased the tax code as well as my having to pay on account. Effectively then double paying part of the tax. I’m not suggesting the liability will be less in 24/25 just that they are effectively asking for it twice - once through PAYE and also through the POA. 

3.  I was attempting to ascertain how this all works going forward with respect to tax coding and to POA. So it’s linked to 2 above. What happens in the future 25/26 onwards - do they still try to claim everything they think I will owe via PAYE and also want POA.? 

My rather addled mind works this way: 
 - when I just had a pension and little or no savings interest everything came out of PAYE
-  then I started to get significant savings interest so had to do this first Self Assessment. So for 23/24 I have paid via PAYE for pension and an estimate of savings  interest and the balance owed will now be paid on completion of the self assessment
- for 24/25 I have again paid via PAYE with a larger amount being taken for estimated savings interest and will now pay the 2 x POAs 

so my tax code is increasing every year … how will HMRC approach 25/26? Will they reduce the tax code as they know I will be doing a self assessment or increase it again to include more estimated savings interest as well as my doing the self assessment? 


Hope this is a bit clearer. I’m trying to get to think like HMRC so I can understand the process!! I’m sure by next year there will be few if any questions!

Dazed_and_C0nfused

1.  No, it is taxable income and is not ignored.  But if it is all covered by some of your Personal Allowance there won't be any dividends to then be taxed.

Have you added up all your taxable income (in your op you said £400 dividends were included there) and then added up all the elements that have subsequently been taxed?

Is the difference either £11,310 or £12,570 🤔

2.  You really need to decide how to approach this.  You can ask for your tax code to be amended if need be.  Or simply pay the POA and then if your actually liability is less because you paid more PAYE tax the POA will be reduced to reflect the actual amounts due.  And HMRC will credit you with interest for overpaying the POA.  Or make a claim to reduce the POA.  Although that is the risky option.

3.  There is no direct link between tax codes and POA.  If you end up paying more under PAYE it might be that POA are not required in later years, either because the Self Assessment amount is less than £1,000 or because the 80/20 rule applies.

You will find out your 2025-26 code in a few weeks and ask for that to be amended if necessary.

sheramber

If you submit your tax return immediately after 5April  any adjustment to your payments on account to reflect you actual liability will be done before you need to pay the July one.

dales1

My detailed calculation from HMRC for 2023-24 is like that.

There is no mention of my dividends at all.

It simply omits to tell my that I have 1,000 dividends taxed at 0% (dividend allowance).

And fails to tell me that all the rest of my dividends have been taxed at 0% (personal allowance applied).

So if I add up the elements of the calculation that have been taxed at 0%, 20% etc, it is 1,000 short of my (total income less personal allowance).

(NB having said that, the tax calculation is correct - just poorly laid out).

poppystar

dales1 said:

My detailed calculation from HMRC for 2023-24 is like that.

There is no mention of my dividends at all.

It simply omits to tell my that I have 1,000 dividends taxed at 0% (dividend allowance).

And fails to tell me that all the rest of my dividends have been taxed at 0% (personal allowance applied).

So if I add up the elements of the calculation that have been taxed at 0%, 20% etc, it is 1,000 short of my (total income less personal allowance).

(NB having said that, the tax calculation is correct - just poorly laid out).

Thanks, that’s a relief. I figured it was ok to go ahead as I have told them about the dividends and they have shown that in the initial part of the calculation breakdown - but some mention of the 0% at that point would have been reassuring!