Not-so-simple assessment

HMRC launches its new Simple Assessment for tax this month. But as you might expect, the new system is anything but simple.

866-PF-634

If you didn't have it marked in your diary, HM Revenue & Customs (HMRC) launches its new "Simple Assessment" for tax this month. But as you might expect, the new system is anything but simple, and is likely to mean many people pay too much tax.

The Simple Assessment scheme will allow HMRC to use the data it already holds on you to calculate how much tax you owe, in a bid to save people from having to submit information unnecessarily.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

So you will simply get a tax bill rather than having to fill out a self-assessment form. At first, only two groups of people will be sent simple assessments, though the system has been designed with the aim of taking millions of people out of traditional self-assessment, an HMRC spokesperson told The Daily Telegraph.

If you pay tax via a pay-as-you-earn (PAYE) system, but have underpaid and cannot repay the extra money owed through your tax code, you will be one of the first people to receive a simple assessment.

Advertisement
Advertisement - Article continues below

You will also be sent a simple-assessment bill if you are a new state pensioner and your income exceeded the personal allowance in the 2016/2017 tax year. If you fall into one of these groups, expect to receive notification that you are being moved to the new system in the coming weeks.

The obvious problem with the simple-assessment system is that you are relying on HMRC to get its sums right and that's not something that you can take for granted. So generally speaking, you shouldn't just accept the amount that the taxman says you owe you need to check the figures for yourself.

However, be aware that you will only have 60 days in which to check figures, go back to employers or banks to get further information or clarification of amounts, and then contact HMRC to dispute the bill this is a ridiculously short period of time. On the right, we look at how to ensure you are being taxed correctly.

How to check that you're not paying too much tax

Make sure you are paying the right amount of tax by checking for mistakes that are commonly made by HMRC.

If tax is taken directly out of your income via a pay-as-you-earn (PAYE) system, then you should receive a tax code from HMRC once a year. Tax codes are often wrong and can lead to you paying more tax than you need to. So when you receive yours, check that it is correct. The code will be made up of a series of numbers and a letter.

The numbers state what your personal allowance is with a zero knocked off so for most of us these will be 1150. The letter represents your tax situation, with the most common one being L. You can see what all the individual tax codes mean by going online at Gov.uk/tax-codes.

Advertisement
Advertisement - Article continues below

Next, make sure HMRC has credited you with all the tax allowances you are entitled to. This includes the Personal Allowance (we are all allowed to earn a certain amount before we start paying income tax each year); the Marriage Allowance; and other potential reliefs such as the Blind Person's Allowance.

Finally, gone are the days when banks and building societies took income tax from any interest payments paid on savings or current accounts. Now you get your interest paid gross, but that means you need to be extra careful with HMRC s tax calculations. Basic-rate taxpayers can earn up to £1,000 a year in interest before they have to pay income tax on it.

This is known as the Personal Savings Allowance. Higher-rate taxpayers can earn up to £500 and additional-rate taxpayers have to pay income tax on all interest payments. Make sure this has been factored in when HMRC has calculated the tax owed on your savings.

In the news this week

As of the start of this month, "instant pension duties" came into effect, says Rupert Jones in The Guardian. This means that anyone who takes on an employee, even if they are simply hiring a nanny or a carer, now has a "legal duty" immediately to enrol that employee into a workplace pension. At the moment, the total minimum paid in is 2% of qualifying earnings, of which employers typically pay half.

However, in April this rises to 5% (with 2% coming from the employer) and in April 2019 it jumps to 8% (with 3% from the employer). Qualifying earnings refers to the amount an employee earns over a minimum level (currently £5,876) and up to a maximum (currently £45,000).

For someone hiring a nanny on a gross wage of £21,932, their contribution would be £160 a year in 2017, jumping to £482 in April 2019. A number of payroll firms will help you to comply with your duties "for a fee" the best known of which is probably Nannytax.

Advertisement
Advertisement - Article continues below

If you're one of the roughly 12 million people stuck on the highest energy tariffs, you might think Prime Minister Theresa May's plan to introduce an energy cap will save you money, says David Byers in The Times.

However, the reverse may be true. A cap could lull people into a false sense of security and make them less likely to switch, warns Energy UK, which represents energy companies. Firms are "likely to settle their rates around the cap and remove their better deals", says Uswitch. Some believe the cap will "dampen competition" and could put small firms who often offer cheaper deals out of business, says The Daily Telegraph.

n Shared parental leave, the government scheme launched in April 2015 to enable fathers to take a bigger role in looking after their children, has had a "pitiful" take-up rate of 1%, and it's not hard to see why, says Ruth Emery in The Times.

While many private- and public-sector employers offer enhanced maternity pay, most only pay the statutory amount for shared parental leave. This is £140.98 a week, less than half the minimum wage. Unless employers start enhancing shared parental pay, they risk sending a message that they "value fathers less than mothers".

Advertisement

Recommended

Visit/519223/how-can-we-raise-more-money-in-tax
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
Visit/518715/what-are-the-biggest-mistakes-investors-make-when-it-comes-to-tax
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019
Visit/516603/how-tax-has-shaped-the-course-of-human-history
Economy

How tax has shaped the course of human history

Taxation is as old as civilisation itself. But how much is too much? Dominic Frisby looks at how taxation, war and society have evolved together over …
16 Oct 2019
Visit/personal-finance/tax/601089/a-few-ways-to-save-tax-before-the-end-of-the-tax-year
Tax

A few ways to save tax before the end of the tax year

The end of the tax year is nigh. You have until midnight on 5 April to take advantage of various tax allowances or risk losing them.
3 Apr 2020

Most Popular

Visit/investments/property/601110/house-prices-and-covid-19
Property

House prices and Covid-19

The housing market is in deep freeze – what happens when it thaws out?
5 Apr 2020
Visit/economy/global-economy/601114/whos-going-to-pay-for-the-war-on-coronavirus
Global Economy

Who’s going to pay for the war on coronavirus?

Central banks and governments are throwing money at coronavirus to stem the pandemic and prop up their economies. But who's actually footing the bill?…
6 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020