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Tax Calculation Questions

Practical Issues
Confused
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Joined: February 9th, 2019, 11:38 am

Tax Calculation Questions

#200118

Postby Confused » February 9th, 2019, 1:45 pm

Hello

I'm trying to check the calculation for a 2017-18 tax return that I (perhaps foolishly) have already submitted using the HMRC's online system. I am a just an enthusiastic, inquisitive amateur, so please accept my apologies if the answers to these questions are obvious to you.

I am looking at the HMRC's SA110 Notes 2018 document. References are to this.

Q1: This question relates to Section 9 (Calc tax after Gift Aid...). Assume a net income of £45k [box 115], gift aid of £1k. and a net income of £33k [box A164]. This gives an income tax due after allowances of £1.8k [box 267]. So, into Section 9, box 268 = box 267 = £1.8k. Box A269 = box A115 = £45k. Multiply this by 0.2 to get £9k for box A270. All other inputs are zero (ie. no Child Benefits, CGT, Lloyds, etc. My issue is that the Income Tax due [box A297, which is then used further down in box A328] comes to the £9k figure (ie. does not reflect the allowances or tax rates). What am I doing wrong?

Q2: I have read several posts about the following issue on this site. I have (small amounts of) (1) salary, (2) savings (incl. foreign income) and (3) dividends and so I need to determine which way to apply the personal allowance against these to give the lowest income tax bill. Section 22 appears to be designed to do this for me. Do I assume that it does not work and I need to use trial and error or another method?

Assuming there is something to be gained by working through Section 22.... (having gone through it I can't imagine many people would do it, much less understand it)

Q3: The instruction for box L2a are "BR band (£33,500) + A119". But the box is pre-filled with £33,500. Should the figure in the box include A119 or not?

Q4: What are the instructions for boxes L41, L42 and L43 (or where does the information for these boxes come from)?

Q5: The instruction for box L56e1 gives two options, one of which is "L56e1 = lower of (L35 minus L56e)". This doesn't make sense. Does anyone know what this should be?

Q6: The instruction for box L56f state that if [something] and "(L3 + L11) minus (L49 + L51 > Q8". Two questions arise: (i) should there be a closing ")" after L51? and (ii) what is intended by the reference to "Q8"?

Q7: If box L48 gives a negative number (it staggers me that HMRC elsewhere refers to 'a minus figure'), should it be substituted with 0?

Q8: Finally, it seems likely that I will want to adjust the tax return. If the HMRC software does not calculate the tax in the most advantageous way, and given that it is too late to submit a paper return, does anyone have advice as to what to do - ie. to advise which order/way to apply the personal allowance?

Thanks for your attention. Grateful for any assistance.

MikeyWorld
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Re: Tax Calculation Questions

#200167

Postby MikeyWorld » February 9th, 2019, 5:12 pm

If you hadn't submitted it you'd have a £100 fine.

1) What you are doing wrong is looking at the pdf version of the paper copy, rather than logging in and saving the online calculation page that pops up just before you submit your return. In the old days of filling out paper returns, there would be pages of waterfalling calculations where you would divide by one number, then take the modulus and multiply that by another number, before taking off another number. It wasn't easy to follow, so you just worked out all of your incomes, all of the tax that had already been taken, and then did basic back of an envelope calculations to define how much tax you needed to pay. Then you'd check that the return resulted in the same number +/- a couple of quid.

2) savings and dividends have their own allowance and tax rates.

3) if you did not use box A119 it won't add anything. It's probably savings income above your savings allowance that needs to be taxed at 20%. Again, many of those boxes didn't make much sense, you just filled them in and they would gradually get added in to the final calculation pages.

6) The missing bracket is because nobody expects you to be reading this stuff anymore.

8) How much do you think you'll save? The tax paid will be right. Set everything up in a spreadsheet, then check before you submit next year.

Confused
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Joined: February 9th, 2019, 11:38 am

Re: Tax Calculation Questions

#200355

Postby Confused » February 10th, 2019, 5:06 pm

Thanks MikeyWorld

I was hoping there may be more helpful suggestions out there. I do have a copy of the online calculation page. But I am trying to understand the underlying calculations. I am trying to set up a spreadsheet to determine the best way to structure investments, etc to minimise tax. Surely if HMRC go to the effort of publishing the SA110 Notes then it should actually be accurate.

Has nobody else attempted to do this?

If nobody else has any suggestions, then I will try to discuss this with HMRC again, but so far this approach has not proved helpful.

Thanks again.

MikeyWorld
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Re: Tax Calculation Questions

#201418

Postby MikeyWorld » February 14th, 2019, 7:57 pm

I didn't realise they still did SA110 Notes. Trust me, you're wasting your time.

Structuring your investments to minimise tax has little to do with the way the tax is calculated.

Know your tax bands and cash and investment reliefs
Utilise your ISA and capital gains allowances
Spend your time learning about pensions, VCTs, EIS etc

Band -Taxable income -Tax rate
Personal Allowance -Up to £11,850 0%
Basic rate - £11,851 to £46,350 - 20%
Higher rate - £46,351 to £150,000 - 40%
Additional rate over - £150,000 - 45%

StepOne
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Re: Tax Calculation Questions

#201571

Postby StepOne » February 15th, 2019, 1:53 pm

MikeyWorld wrote:Band -Taxable income -Tax rate
Personal Allowance -Up to £11,850 0%
Basic rate - £11,851 to £46,350 - 20%
Higher rate - £46,351 to £150,000 - 40%
Additional rate over - £150,000 - 45%


Different if you live in Scotland of course.

But the same for dividends, even if you live in Scotland. To add to the confusion.

scrumpyjack
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Re: Tax Calculation Questions

#201585

Postby scrumpyjack » February 15th, 2019, 3:05 pm

Don't forget you lose the personal allowance if your income is over £100,000 (lose £1 pa for every £2 income) so the effective tax rate on the band £100k to £124k (approx) is 60%

daveh
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Re: Tax Calculation Questions

#202043

Postby daveh » February 18th, 2019, 10:58 am

StepOne wrote:
MikeyWorld wrote:Band -Taxable income -Tax rate
Personal Allowance -Up to £11,850 0%
Basic rate - £11,851 to £46,350 - 20%
Higher rate - £46,351 to £150,000 - 40%
Additional rate over - £150,000 - 45%


Different if you live in Scotland of course.

But the same for dividends, even if you live in Scotland. To add to the confusion.


I've never quite worked out how that works so to keep it simple I just keep my income* (including dividend income) below the Scottish higher rate band.
(I assume that if my income from employment (and interest?) is below the Scottish higher rate band, but the addition of approx. £2k of dividend income takes me over the Scottish higher rate band, but under the RoUK higher rate band I remain a basic rate tax payer and have no extra tax to pay.

* I keep my income below the higher rate band by paying extra into my pension which comes off before tax and NI via salary sacrifice.


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