Tax calculation

[Retep99]

I can't understand the HMRC tax calculation. I moved into higher rate for a small amount of tax from last year now when it says I have to pay 20% tax on £38,524 this seems odd as the difference between 20% and 40% is only £37,699. It just doesn't seem to make sense.

[Lambs]

Dear R,

I understand the point you make but it looks like you have some kind of adjustment to your Basic Rate Band, to increase it by £825. Likely candidates are personal pension contributions, and/or charitable donations under Gift Aid. Or, potentially, HMRC's calculation is trying to collect extra tax "now", by tweaking your PAYE tax code in this later tax year, so then to set the surplus collected against the underpayment from last year that you mentioned. The effect of the adjustment depends on the context.

Note that if you reported such transactions in the past, HMRC may assume similar pension or Gift Aid payments have been made in "this" year now in point. (These adjustments to the Basic Rate Band will affect your overall tax position only if you continue to be subject to Higher Rate Income Tax.)

It is not clear from your post if you are looking at the provisional calculation that HMRC sometimes makes to work out your PAYE tax code, or a formal end-of-year calculation. If the latter, then you are obliged to tell HMRC if such adjustments to extend your Basic Rate Band are wrong/excessive because you did not make (or will not have made) those payments in the tax year currently in point.

I trust this is useful.

With regards,

Lambs