Individuals who are taxed under PAYE and who do not complete an annual tax return may receive a tax calculation (on form P800) from HMRC covering the previous tax year.
If you have received such a tax calculation, please check it carefully and send a copy to us to check it for you. HMRC does make mistakes and the computer-generated calculation may contain structural errors.
A common error is where the taxpayer has significant savings or dividend income in addition to some salary or pensions income. In this case the savings rate band (0% tax on up to £5,000 of savings) and the savings allowance (0% tax on up to £1,000) may both come into play.
The law allows the taxpayer to set their personal allowance against their income in any order, as best suits the individual, and to take advantage of these two reliefs for savings. However, the PAYE computer has been programmed to allocate the personal allowance in this order:
1. non-savings income (employment, profits and pensions);
2. savings income;
It may be better for you to set your personal allowance first against non-savings income and then against dividends, before savings income, to leave the maximum amount of savings to be covered by the savings allowance. We will be able to check whether the HMRC calculation is in your favour.
Such an error may have existed for some years, so if it applies to you we can help you review your tax position.