From Smop.co.uk

Contents 1 Tips 2 Tax calculation 2.1 Front page 2.2 Main page

Tips

• photocopy _everything_ you send off - that way the next year you can just copy it and alter the numbers
• make notes:
  • where numbers come from
    • for example list bank interests by bank, then sum them, then do any calculations
  • make separate notes (like these) to tell you how to work items out
  • of contributions to pension funds, gift aid payments
    • it's much harder to remember at the end of the year
• print off tax statements from banks when you can (they don't stay around forever)
• organise yourself - either sort by year, by type (P60/P11D) or both

BTW "gross" payments are before tax has been taken off, "net" payments are after tax has been taken off.

Tax calculation

This assumes you earn enough to a higher rate tax payer.

Front page

The front page of your tax calculation should look like:

  The basic rate band is extended to A from B to provide higher rate tax relief for:
  pension contributions  X
  gift aid               Y

So, first of all you need to dig out the pension rates. You will see that:

• B = higher rate band - lower rate band (i.e. it's always right!)
• A = B + X + Y

However they often don't tell you this in any detail - they just say it's been raised by a certain amount. Unless you donate a lot of money to charity the thing that really makes a difference here is pension contributions. This is money paid by _you_ (not your employer) into any pension - perhaps as AVCs (additional voluntary contributions) or into a SIPP (what I do these days). This should be the "gross" amount where the "tax rate" is _always_ basic rate (i.e 20% now, but 22% until very recently). For example if you wrote a cheque for £1000 into a SIPP, for the tax year 2006-2007 you would expect X to be 1000 * (100/78) = £1282. For the tax year 2008-2009 you would expect X to be 1000 * (100/80) = £1250.

Main page

This page has lots of numbers on it, but quite a few are worked out and once you get the hang of it, it's not too bad.

                                         Income                 Tax paid

Your income:
              employment                   a                        e
              interest                     b                        f
              medical insurance            c
              benefits                     d
              TOTAL                        G                        H

Deductions from income:
              Job expenses                 j
              Income after deductions      K

Tax allowances:
              Personal allowance           L

Income tax chargeable:
              Chargeable on this amount    M

              starting rate (10%) on    n = P
              basic rate (20/22%) on    q = R
              higher rate (40%) on      s = T

              TOTAL tax chargeable        = U

Adjustments:
              Tax overpaid                = W

Tax payable                               = X

Repayment of tax                          = Y

Phew - lots of things here. We'll go through each section in turn.

Your income - this is from your P60 and P11D forms:

• a = total salary (gross). e = total tax paid. Both these are from P60
• b,f = interest from your banks. unfortunately you normally have to ask for these
  • wouldn't it be nice if the banks had to send you this by law?
• c,d = these come from your P11D form if applicable
• G, H = the totals of these columns

Deductions from income (optional):

• I had these when I claimed back mileage. You can claim back the difference between the mileage rate you are paid and 40p/mile if you have a personal car. This is true even if you are paid a car allowance, but does _not_ apply if you don't own the car.
• K = G-j

Tax allowances:

• I've only ever had "personal allowance" here which everyone gets, but there are other allowances you can get
• L = personal allowance (number is from the government website above)

Income tax chargeable:

• lots of letters, but it is straightforward:
• M = amount you will be paying tax on. M = K-L (or G-L if you didn't have the "deductions from income" section)
• first of all you pay starting rate tax (10%) on the first "n" amount - n is set by the government and is at the website above
• P = n * 10/100

Now we need to work out how much basic and higher rate (if any) we pay. To do this we'll need that "A" figure from the front page.

• first of all how much income do we have left to pay tax on?
  • let's call this Z. Z=M-n
• if (Z <= A) then we won't be paying any higher rate tax :-)
  • q = Z
  • R = q * (20 or 22)/100
  • s = 0
  • T = 0
• otherwise I'm afraid we'll be paying higher rate tax
  • q = A
  • R = q * (20 or 22)/100
  • s = Z-A (amount of income left to pay tax on)
  • T = s * 40/100
• finally U = P+R+T

Adjustments:

• this is where corrections are done - generally over or under payments from the previous year
• X is the final amount of tax due taking this into account
• X = U + W (or maybe -W depending on if you have over or underpaid!)

Finally the important number.

• if (X < H)
  • you have paid too much tax and will be due a refund of Y
  • Y = H-X
• if (X > H)
  • you have paid too little tax and will have to pay Y
  • Y = X-H