Confused about self assessment

lilacskitten

Your annual tax-free amount is

£20,503

It can be:

increased if you qualify for certain allowances or tax reliefs

decreased to collect tax due for company benefits or income from other sources

How your tax-free amount is calculated

Personal Allowance

£12,570

Additions

Personal Pension Payments

£7,906

Update or remove

Gift Aid Payments

£27

Update or remove

Total additions

£7,933

Deductions

You do not have any deductions

£0

Your total tax-free amount

£20,503

lilacskitten

On another page it says it's allowing £1,586.40 tax for income for other sources. Which is the amount that I want actually expecting to pay.

Dazed_and_C0nfused

lilacskitten said:

I have a full time job,rental income and pay in to a SIPP to avoid 40pc tax.
Last year I was given a tax code of 2020l which my employer has used so I don't pay tax of the first 20k of income.
However when I do my SA the calculation is different and they take all my income, deduct the normal tax free amount of 12250 and then use the 20k as a basic rate extension. 
So I don't pay 40pc tax but I do owe more 20pc tax than would be due on the rental income alone.... Is that right?
Very confused...thanks for any guidance 

The reason you are confused is because you are conflating two completely separate things.

A tax code is just a provisional attempt to collect the correct amount of tax.

Once the tax year is over you can largely forget about your tax code, it is your Self Assessment return which finalises things, taking into account any PAYE tax you have paid during the year in question.

Chances are your tax code was, with hindsight, higher than it should have been.  So you have ended up with a larger Self Assessment liability than you probably expected.  

Which is a good reason to keep on top of things and review your tax code during the year if you don't want an unexpected bill.  Or as others might say, an interest free loan from HMRC 😉

lilacskitten

Thank you, guess I shall say goodbye to the idea of somehow reducing the amount of tax to the amount I was expecting 🤣