Payroll Services and the Married Tax Allowance

The Marriage Tax Allowance – Millions are Missing Out

As Payroll Services specialists we’re often asked if there are any easy – and legal – ways of increasing take home pay. The answer is yes: The Marriage Tax Allowance. If you’re married, or in a civil partnership, then the government’s Marriage Tax Allowance introduced in April 2015 could provide a tax break of up to £662 for doing nothing other than applying for it. And yet it is estimated that over 1.9 million of the 4.2 million eligible couples are missing out because they haven’t applied. So here’s our quick guide.

Who Is Eligible?

  • Only married couples or those in a civil partnership, where both are born on or after 6th April 1935.
  • One member of the couple needs to be a non-tax payer (i.e. earning less than the current 2017/18 personal tax free allowance of £11,500).
  • The other member of the couple needs to be a basic 20% tax payer, earning more than £11,500 but less than £45,000 per year in 2017/2018.

So if you fit the above criteria – that one of you is a non-tax payer and the other is a basic rate tax-payer, then you are eligible. It’s that simple, and yet millions haven’t applied.

How Does it Work?

Put simply, the person who does not pay tax because their earnings are below the £11,500 personal allowance threshold (above which income tax kicks in), can transfer 10% of their personal allowance – £1,150 in the current 2017/18 tax year – to their spouse’s/civil partner’s personal allowance.

The key point is that it is only £1,150 that can be transferred. Not more or less. Essentially it increases the tax payer’s personal allowance by £1,150 (to £12,650), meaning they pay 20% tax on £1,150 less of their earnings, a saving of up to £230 in the current 2017/18 tax year. It does also, effectively, reduce the non-tax payer’s personal allowance to £10,350, so the full benefit of £230 will not accrue if the non-tax payer earns between £10,351 and 11,499.

For example, if the non tax payer’s earnings are £11,000 per annum, then the amount of unused personal allowance is £500. However in this scheme, £1,150 is the only amount that can be transferred, and it effectively reduces the non-tax payer’s allowance to £10,350, who now earns £650 above the nominal allowance, on which tax must be paid at 20% – £130.

The partner still benefits by £230, but the net gain for the couple is £100. In other words it is still worth doing.

So how do we get to the figure of £662? The answer is that if you haven’t claimed yet, you can backdate it and still claim for the current year. Given that the married tax allowance started in April 2015, and you haven’t claimed yet, but were eligible for all qualifying years, then for 2015/16 the maximum claim is £212, for 2016/17 it is £220 and for 2017/18 it is £230, making a maximum total of £662.

How to Apply

You can apply via HMRC’s on-line application form, and you’ll need both National Insurance numbers along with ID. You can also call them on 0300 200 3300 and sort it out over the ‘phone. However, it is the non-taxpayer who must apply to make the transfer, not the other way around.

If you are eligible, you’ll be notified by email. Also, as noted above, if you were eligible from when the scheme started in 2015/16, then you can receive a payment backdated to that year. In fact, backdating is allowed for 4 years, so if you get to 2019 and apply then and you qualified for all of the previous 4 years to when the scheme started in 2015/16, backdating applies.

There are one or two very niche scenarios when this is not worth doing, where, for example, the non-tax payer earns just below the threshold and the tax-payer earns just above the threshold. For example:

Assume the non tax payer earns £11,300, and the tax payer earns £12,000 and is a basic-rate taxpayer. The non-tax payer has to transfer the full amount of the allowed personal allowance, £1,150, which leaves the non tax-payer with a personal allowance of £10,350, whilst increasing the tax payer’s personal allowance up to £12,650.

The non tax-payer now earns £950 more than the revised personal allowance, which at 20% tax is £190 for the year. Meanwhile, the £1,150 personal-allowance increase that the tax payer gets means that  they will get to keep an extra £100. The net loss to the couple is £90 – showing that in niche circumstances, couples could lose out, and it is not worth applying.

We Can Help With Payroll Services

As ever with HMRC there are a few little extras that can add some complexity, as the above shows. As experts in Payroll Services, it is our job to know HMRC’s payroll rules and regulations inside out. So if you need help with payroll, from working out if the Marriage Allowance works for you or any of your employees, up to running your firm’s payroll, allowing you to get on with running your business, we can help.

Contact us or call us on 0121 422 0550.

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