I’m sure we all know from April 2015 clients who qualify could transfer a fixed amount of their personal allowance to their spouse or civil partner. This reduces the transferring spouse or civil partner’s personal allowance and gives a tax reduction to their spouse or civil partner.
For the 2015-16 tax year, the transferable amount is £1,060 (10% of the Personal Allowance) and the tax reduction is up to £212 annually, or set against tax weekly or monthly for PAYE clients and as a lump sum tax reduction in the case of Self-Assessment clients.
As we’ve gone past 6th April, I wanted to share with you some interesting points that have arisen as a result these claims via the SA tax return.
If a client applies via GOV.UK then they only need to do this once and Marriage Allowance will continue until either partnercancels the allowance or their circumstances change, e.g. because of divorce or death. But if they apply on their Self-Assessment return then clients will have to apply every year.
However, it’s what happens when we get to the tax return itself that has already begun to cause a mild levels of chaos and confusion…
How is it included in the SA calculation?
For a Transferor – at stage 4 (part of the calculation)
For a Recipient – at stage 12 (not part of the calculation)
Why is this?
As set out in 55A (1) of the Marriage Allowance legalisation the transferor makes the application for the transfer so it can form part of their Self-Assessment.
However, as the Recipient does not request Marriage Allowance they are silent in the process and because they do not claim it on their tax return it cannot form part of their Self- Assessment. It is, therefore, included as a below the line adjustment. This ensures the recipient receives Marriage Allowance as the policy intended as a tax reduction.
This method also allows the removal of Marriage Allowance if it turns out the transfer was not valid.
What does that mean for you?
The recipient’s below the line adjustment is not included in Tax Calculation Summary Box 1 or Box 2. The net amount payable or to be repaid is Box 1 or Box 2 minus the Marriage Allowance reduction.
The Marriage Allowance reduction is also not included in the calculation of the Payments on Account.
The amount submitted in the tax return will not include Marriage Allowance and will differ from the amount payable or repayable if eligible to receive Marriage Allowance.
When HMRC process the tax return, if eligible, the Marriage Allowance transfer will be applied.
Here is a quick example of the confusion that is now arising out there in the real world with a Recipient, the total tax due for the year is £1880 but MCA is transferred so the bottom line figure is reduced to £1668. However, what is submitted to HMRC on tax Calculation Summary Page 1 Box is £1880.00 leaving HMRC to confirm the allocation of the credit for the MCA.
This only applies to those in self-assessment. If the Recipient is in PAYE the allowance will be simply coded out so that relief is given at source.