As your letter or email box rattles with your end of year paperwork like P60s and savings/investment information, it is a good time to check you have paid the correct amount of tax for the previous year. You can also make sure that HMRC have up to date information regarding your current circumstances and income.
P60’s, P45’s and P11D’s are certificates which provide pay and tax details for sources of Pay As You Earn (PAYE) for income, like pensions or employment. If you only have one source of income this is a relatively straightforward task but nevertheless, it is still worth checking that you have paid the correct amount of tax. Mistakes happen and you want to be sure that these mistakes are not happening to you.
To check that your tax is correct you need to know what your taxable income is, the allowances you are entitled to and the tax rates that apply. There have been changes to taxation around savings and investments in recent years, so you might need to check that you have the up to date information. You can visit www.gov.uk/income-tax-rates, phone HMRC on 0300 200 3300 or contact Tax Help for Older People for help.
You will find information regarding your taxable income on P60’s, P45’s and P11D’s supplied by your employers and pension providers. Also check letters from the Department of Work and Pensions (DWP), bank and building society statements and dividend vouchers that show payments and tax details. HMRC coding notices can be useful too.
Once you have added up your total taxable income, remove your tax free allowances and apply the appropriate tax rate to see what tax is due. Be aware of the Married Couples’ Allowance (for couples born before 6th April 1935) as this is a tax reducer rather than a normal allowance.
As mentioned above, it has become more confusing so the following examples may better explain;
A pensioner has a state pension of £10,000, a private pension of £5,500 and savings interest of £2,000. Their personal allowance in 2017/18 was £11,500 and they will pay tax on £4,000 of their pension income (£15,500 pensions less £11,500 personal allowance), which at 20% would be £800. They won’t pay tax on their savings interest because £1,000 is covered by the 0% savings rate and the remaining £1,000 is covered by the Personal Savings Allowance.
It is possible for a person to receive up to £17,500 tax free, covered by the personal allowance (£11,500), the 0% savings rate (£5,000) and the personal savings allowance (£1,000).
Once a person’s non savings income is above £17,500 they are no longer eligible for the 0% Savings Rate. So, if their non-savings income is, say, £18,500 with savings interest of £2,000, they will now pay 20% tax on £7,000 of their pension income: £1,400. They can then use their £1,000 personal savings allowance, leaving £1,000 savings interest which will be taxed at 20%: £200. They should also notify HMRC of their taxable interest and ensure that HMRC tax the interest correctly.
Be aware of other allowances like the Marriage Allowance and the Blind Person’s Allowance as the figures above will change. If you are in doubt please ask for help. The rules are confusing and sometimes complex. We often see people with the wrong tax codes paying the wrong amount of tax.
Posted in: Tax Tips