Slipped into higher-rate band by £3.70. Recovery possible?

[foolishalec]

Alas, I have exceeded the 2016/17 basic-rate tax band limit: total income = £43,003.69. Yes, £3.70 too much.

(It’s because a savings account paid interest on a July-to-July cycle. The gross interest was credited to me in July 2016. I thought that (because of the legislation change starting in tax year 2016/17) only the interest earned in the 2016/17 tax year would be count as income. But the whole gross interest, accrued from July 2015 to July 2016, was used.)

Any suggestions on getting assessed back into the basic-rate band for 2016/17?

(I gift-aided during 2016/17 but my understanding is that this would not help in returning to the basic-rate band.)

Thanks.

[supremetwo]

Yes, £3.70 too much. Thanks.

Is this a joke?

[mearnsfool]

Every Little Helps!

[tjh290633]

Gift aid donations increase the basic rate band by the amount of the donations.

TJH

[chas49]

Is there a reason why it would be worth doing anything about this?

[Alaric]

Any suggestions on getting assessed back into the basic-rate band for 2016/17?

Gift Aid and Pension Contributions are processed for higher rate relief by extending the basic rate band. I don't think you can now do anything for 16/17 rather than 17/18.

[foolishalec]

I should have explained the underlying problem. As a result of slipping (by £3.70) into the higher rate band for 2016/17 I have been sent a bill for several hundred pounds due to:
- the tax free savings limit dropping from £1000 to £500;
- no longer qualifying for the marriage allowance in 2016/17.

[vrdiver]

(I gift-aided during 2016/17 but my understanding is that this would not help in returning to the basic-rate band.)

You are allowed to offset HRT against Gift Aid (i.e. if you made a gift-aided donation of £0.80. The charity will claim basic rate tax, taking their total received to £1. You declare your donation on your self assessment tax return, which will recover another 20p, reducing your total tax owed.

ref: https://www.gov.uk/donating-to-charity/gift-aid

So, in your case, you have £3.70 of income taxable at 40%. If you gift-aid £2.96 in the same tax year you will owe basic rate tax on this, but can claim the HRT back: your tax calculation will reduce your total tax by £2.96*0.25=£0.74, which is the HRT that you would have owed on the £3.70.

The charity has already claimed the 20% BRT on the net £2.96, bringing your effective donation to them to £3.70.

VRD

[pochisoldi]

Is there a reason why it would be worth doing anything about this?

Yes - for this guy the tax due on that £3.70 could come to as much as £201.48. (assumes that interest is in excess of £1000 for the year).

The taxation of interest has been poorly thought out.
A more sensible calculation would be to calculate tax due at the appropriate rate and then apply an allowance of the lower of £200 or the actual tax due.
The way it currently works, anyone who gets taken into the 40% band by savings under £500 gets hit with a penal effective tax rate.
Worst case scenario, £1 over - and you pay tax at 20040%.

Assuming that this has come about after submitting a tax return, I can't understand for the life of me, how someone has managed to submit a tax return without checking the calculation to ensure that no higher rate tax was due.

If this had been done before submission, then a gift aid contribution made this year but treated as been made last year would have done the trick.
Your only hope of recovering this situation is to re-examine the whole tax return and look to see if any errors have been made which would either reduce income or increase deductions (- check last year's gift aid contributions - did you claim every last penny?).

pochisoldi

[GPhelan]

It is easy enough to transfer Gift Aid to the prior year.
On page TR 4 in the Charitable Giving section of the 2016/2017 SA100 main tax return form, box 8 is for:
"Gift Aid payments made after 5 April 2017 but to be treated as if made in the year to 5 April 2017"
The clever part is that if you have not yet made any Gift Aid donations in the current tax year, you still have the opportunity to do so. I used this mechanism once to avoid having to pay the next years tax in advance, having just slipped over another threshold.

In the next year's tax return you exclude this amount from the Gift Aid donations made in that tax year by reporting the same amount in box 7. HMRC have the information needed to check the amounts balance, so don't forget...

I model my tax return in advance using the SA2000 Excel based calculator from http://www.sa2000.co.uk This always matches the eventual online submission within a few pence.

GPhelan

[Alaric]

It is easy enough to transfer Gift Aid to the prior year.

As we're now the other side of 31st January, is it still possible to resubmit but with different Gift Aid values?

[PinkDalek]

It is easy enough to transfer Gift Aid to the prior year.

As we're now the other side of 31st January, is it still possible to resubmit but with different Gift Aid values?

Good try but not if I've understood sections 426 (1) & (6) Income Tax Act 2007 correctly and assuming that is the most up to date Act but, even if it isn't, I doubt anything has changed on this front:

426 Election by donor: gift treated as made in previous tax year

(1) If—
(a) an individual makes a gift to a charity that is a qualifying donation, and
(b) the condition in subsection (2) is met,

the individual may elect to be treated as if the gift had been made in the previous tax year (“year P”) ...

(6) An election must be made—
(a) on or before the date on which the individual delivers a return for year P under section 8 of TMA 1970 (personal return), and
(b) not later than the normal self-assessment filing date for year P.

http://www.legislation.gov.uk/ukpga/200 ... ack-relief

[foolishalec]

Many thanks for your replies.

I made about £250 in gift-aided payments in 2016/17. I did not have to complete a tax return, and believed I was a basic rate taxpayer. So HMRC were not notified of these payments.

I have now notified HMRC and hope for a reduction in my bill.