Why is self assessment tax calculation much higher than expected?

[biscuitto]

DH earns just over £100k and has been asked to do his first self assessment tax return. His financial affairs are pretty straightforward - PAYE, some savings interest and dividend payments which slightly exceed the £500 allowance.

He's just completed the online form and the tax payable comes out at almost 100% of his savings interest and dividend payments.That can't be right given the £500 allowance, so presumably it's something else, but we can't figure out what it would be given that he's PAYE so other tax has presumably been dealt with through his tax code?

Anything obvious we're missing before he gives them a call? Thank you!

Go to HMRC, login with Government Gateway, then go to Self Assessment > More Details > Get SA302 Tax Calculation. That should explain what has gone where!

If that isn't available, you might need to wait a little while, but it should appear well before the deadline.

Ah that's fab - thanks, @PhotoDad ! Will get him to give that a try tonight. Couldn't initially see a breakdown but might have been in the wrong place.

It's a really odd website. The clearest way to see your account is from "Business Taxes" even if you're only registered for Personal Taxes! Good luck!

Is it because there's an amount to pay on account for next year

The personal allowance gets tapered away from £100k so it might be to do with that. That should be taken account of in PAYE but it's not perfect especially if there have been changes of salary during the year.

Look at the calculation on the HMRC site and it should show what has happened.

Could be the payment on account. The first time you do a self-assessment you get charged the tax owed, plus 50% of what HMRC think you will owe next year - they assume you will have the same level of income. If your income fluctuates, or this is a one-off high income year, you can request to not pay so much on account, but otherwise, over the course of a couple of years, it will balance out.

You guys are all great - thank you! Found the breakdown. Looks like it's the impact of the reduction of the personal allowance, as @HappyHolidai suggested. Thanks again!

If his salary is likely to remain in that range and he can afford it, he should look at ways to keep his taxable salary below £100k as the marginal rate is very high.

Most common way is to increase pension contributions.

Thank you! Yes definitely - at the time he thought he was contributing enough to get it under 100k but I think a small bonus and savings interest just tipped him over this time.

Losing the personal allowance means you get an ‘effective’ tax rate of about 60% for the first earnings over £100k. Bloody annoying! It feels even worse when you earn under £100k all year and a bonus in Feb or March puts your full year income to £115k. So all year you are taxed as if you have a PA, then it is wiped out.

If you earn over £100k then your personal allowance is reduced by £1 for every £2. After £125,140 (usually), you are not entitled to any personal allowance.

If he is somewhere in the middle then HMRC will have estimated his earnings and based his PAYE code on the estimate. HMRC are usually v good with PAYE but they fall down in the £100k - £125k bracket and it’s usually wrong.

If he knows how much he will earn in the current tax year then he should get his PAYE code updated now.

The tax-free dividend allowance for the 2023/24 financial year has been halved from £2,000 (the year before) to £1,000. This means that any individual who receives over £1,000 in dividend income will be liable to pay tax on the excess of their marginal rate.