Self Assessment insight required - 2016/17 return

[mgst170]

Hi All,

That time of year and last minute as usual.

I was wondering if anyone could shed light on a couple of things:

Before any comments - not a powerfully built director, just lucky, try hard and doing ok....

I'm in the position of just over £100K in earnings, so start to lose part of my personal allowance.

The vast (95%) of my income is PAYE and smidgen over 100K. Rest made up of 1x BTL income ~£4K

What I think I am seeing is that any income i make over 100K I get whacked for tax,as not only do i have to pay 40% on those earnings over the 100K, I also lose a proportion of the personal allowance - therefore appear to owe tax on what I have already been taxed via PAYE.

Does that make sense? or am i missing something?

Also, I have minimal dividend income (<£100), but this is still added to my income and being taxed according to my self assesment. I thought that Div income was not taxed <£5k.

Any insight appreciated before I submit my return!

Thanks

Edited by mgst170 on Tuesday 30th January 19:42

[Olf]

Yes - welcome to the marvels of the marginal tax rate:



http://www.telegraph.co.uk/tax/news/crazy-tax-syst...

Look at pension contributions etc to minimise.

[sas62]

Cant help with the dividend question but the rest sounds correct. Your £11k personal allowance tapers away above £100k and totally disappears when you reach £123k.

Sounds like your tax code was not adjusted to take account of this and so less PAYE than required was taken.

Too late for last year but you may be able to offset this next year with pension contributions to bring you back below £100k

Or your employer may have some other salary sacrifice benefits that could bring you to below £100k as alternatives.

[Jockman]

Yeah, salary sacrifice (pensions) is screaming out at me.

Pretty sure I heard HMRC were looking at this scenario but I'd be surprised if they targeted Pensions.

[mgst170]

Thanks for all the replies folks.

Re the tax code, I had kind of assumed that it would have taken account of this, I guess as part of that salary is bonus, perhaps that did not trigger any changes as HMRC May have expected a base salary less than £100k.

Is this something PAYE and tax codes can handle? Or am I likely to get a bill each year to cover reduced personal allowance?

Also based in Scotland, so now have an S prefixed tax code, and can look forward to 2018 tax shenanigans.

Already doing 15% into pension... young growing family and sole wage earner so even when taxed heavily, extra pennies are nice to have.

Any other bright ideas on the dividend?

Thanks again folks.

[sas62]

You can call HMRC and ask them to set your allowance to zero every year on the assumption you will earn £123k or more. Can't remember the code.

Then if you earn less you'll get a refund at SA time.

[NickCQ]

mgst170 said:

Any other bright ideas on the dividend?

Assume you are maxing ISA allowance?

[NickCQ]

sas62 said:

You can call HMRC and ask them to set your allowance to zero every year on the assumption you will earn £123k or more. Can't remember the code.

Then if you earn less you'll get a refund at SA time.

You can also do this online pretty painlessly through the 'personal tax account' - there's a box in one of the menus where you can type in your estimated annual earnings for the current tax year and I think it adjusts how much tax they take through PAYE.

[mgst170]

NickCQ said:

sas62 said:

You can call HMRC and ask them to set your allowance to zero every year on the assumption you will earn £123k or more. Can't remember the code.

Then if you earn less you'll get a refund at SA time.

You can also do this online pretty painlessly through the 'personal tax account' - there's a box in one of the menus where you can type in your estimated annual earnings for the current tax year and I think it adjusts how much tax they take through PAYE.

Thanks both - will take a look at this

[Jockman]

Cropped this from the Govt website.

The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

[RL17]

I thought dividend income up to £5k tax free (£2k for 18/19 (although the way they do it you might pay nil tax on dividend but get hit on the personal allowance reduction - as they add it in and then tax it separately later in the detailed calculation).

62% as go over £100k taxable correct - is your pension contribution taken away already in your figures?

For that level of dividend income the tax is less than most S&S ISA fees

If over that £100k for 16/17 not much you can do without massive pension contributions - but need to do some calculations now for 17/18 asap once the urgent return submitted.

edit - review buy to let for future years if £4k is net of mortgage interest as will get hit more as deduction for interest reduces to 20% over next few years.

Edited by RL17 on Tuesday 30th January 20:46

[mgst170]

Jockman said:

Cropped this from the Govt website.

The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Yeah, I saw that and clearly I am missing something... as when I add the dividend to the form, it adjust both the top line total income but also my bottom line tax to pay &#128533; I can’t correlate how that is not paying tax on dividend income.

[mgst170]

NickCQ said:

mgst170 said:

Any other bright ideas on the dividend?

Assume you are maxing ISA allowance?

No, black mark on my management of my finances here...

Having read the great thread from Harry earlier in Jan this is something that will get fixed.

The dividends are simply from a nominal amount of BP shares I hold.

[mgst170]

RL17 said:

I thought dividend income up to £5k tax free (£2k for 18/19 (although the way they do it you might pay nil tax on dividend but get hit on the personal allowance reduction - as they add it in and then tax it separately later in the detailed calculation).

62% as go over £100k taxable correct - is your pension contribution taken away already in your figures?

For that level of dividend income the tax is less than most S&S ISA fees

If over that £100k for 16/17 not much you can do without massive pension contributions - but need to do some calculations now for 17/18 asap once the urgent return submitted.

edit - review buy to let for future years if £4k is net of mortgage interest as will get hit more as deduction for interest reduces to 20% over next few years.

Edited by RL17 on Tuesday 30th January 20:46

Re BTL - yes, this will be liquidated this (17/18) tax year hopefully. The 4K was before interest deduction, but the gradual removal of relief still is applicable, hence the decision to move the money elsewhere (after cap gains etc).

Cheers

[RL17]

mgst170 said:

Yeah, I saw that and clearly I am missing something... as when I add the dividend to the form, it adjust both the top line total income but also my bottom line tax to pay ?? I can’t correlate how that is not paying tax on dividend income.

you will lose some of your personal allowance so will be taxed 50% of the dividend income that way - you can look at calc on line (detailed calc and print and then remove an item (or reduce it to £10 say) and redo detailed calc and print)

[mgst170]

RL17 said:

mgst170 said:

Yeah, I saw that and clearly I am missing something... as when I add the dividend to the form, it adjust both the top line total income but also my bottom line tax to pay ?? I can’t correlate how that is not paying tax on dividend income.

you will lose some of your personal allowance so will be taxed 50% of the dividend income that way - you can look at calc on line (detailed calc and print and then remove an item (or reduce it to £10 say) and redo detailed calc and print)

Yip, done that. I my naivety I was expecting the calculation engine would exclude dividend as income unless they were > £5k. Afaik that 5k allowance of untaxed dividend is irrespective of your total income

From HMRC
The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.

As the self assessment entry is one specifically for divends (as opposed to other income types) I’m still missing why it should be affecting my tax bill... in my head, the engine should be deducting 5k from whatever value I provide, and only if that result is >0 should the dividend be taxed. As it stands, it’s treating dividend income the same as any other form.

[thebraketester]

Get an accountant..... let him worry about it all :-)