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Is this really a filing exclusion?

Software says it is, but I cant work out why

Client with PAYE £8164, Rental income £3488, Dividends £38,250 so gross £49,902. 

Tax worked out as BR on £152 @ 20%  (for the PAYE+Rental)

Then on the divis nil rate band £5k, £28,348 to HR @ 7.5% = £2,125.10

Then HR £4,902 * 32.5% = £1,593.15

Total tax £3,749.65

I'm stuffed if I can see how that can be bettered, but my software is suggesting we should paper file under exclusion 70, but what order of offset wins?

If you put the L&P in as top slice, all we do is replace 32.5% with 40%.   Its not as if we have savings income to push to the top band.

Any thoughts?

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16th May 2018 14:04

I agree with you. I can't see how adjusting allowances can do anything other than increase the tax charge.

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16th May 2018 14:16

Your calcs seem fine.

BTC DOESN'T highlight this as a filing exclusion case.

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16th May 2018 14:25

Good to know I am not going completely mental

Just reworked a return due to missing the new £1,000 rental allowance that I was a nano second away from sending to a client before the penny dropped he had no expenses, had another I missed the fact the client was just a BR tax payer and could trf his mr's allowance who is (quite reasonably to be fair) in a hump with me for missing, and a third return was not filing due to a zero not appearing in a box, which passed my software's checks but not HMRC's.

My head was about to explode when I saw the filing exclusion.

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16th May 2018 15:11

CCH Personal Tax says this may fall under Exclusion 70. In such a situation I refer to the HMRC table of exclusions to consider their specific example.

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to halblackburn
16th May 2018 15:20

thanks for running it in your software, but why should this be an exclusion?

I cant see why myself.

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By Jholm
to ireallyshouldknowthisbut
16th May 2018 17:29

Tried it in my software and done a few quick manual calcs with different allocations and I can't see any reason either.

I've seen an instance in the past where it thought there may have been an exclusion because the amount of dividends taxed at higher-rate was less than £5,000 so perhaps this is why?

EDIT: Exc.70 info....

A customer’s total income is more than £43,000 with more than £5,000 dividends. The calculation uses reliefs and allowances to reduce non-savings and savings income at 20% rather than dividend income at 32.5%. Reallocating their reliefs and allowances would reduce, or prevent them having to pay, higher rate dividend tax. This is identifiable where the non-savings and savings income is less than the extended basic rate band and there are dividends taxable at the higher rate 32.5%

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to Jholm
16th May 2018 17:46

hi I read that earlier, but still cant see how it applies here. If my letting income was savings income, I can see how you can do it better unless you can split the dividend income with the non-savings income such that you count some of the dividend income with no £5k allowance, then the non-savings income, then count the last £5k of dividend income with the allowance for the bit poking into the HR, but I thought you had to take the £5k allowance against the first tranche of dividend income.

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16th May 2018 15:14

.

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16th May 2018 17:49

Is it just trying to warn you that HMRC may get a different answer and reject your return - as opposed to saying your answer is wrong?

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17th May 2018 11:21

With no taxable savings income I can't see how Exclusion 70 can be relevant.

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17th May 2018 11:35

The HMRC explanation for no. 70 (from version 8.1 of the Exclusions listing) is:

"Where there are dividends in the higher rate nil band (c5.29) but, after deducting allowances, this moves some or all of the dividends to the basic rate then the calculator will not identify that this will leave an amount of dividends at 32.5% that would be advantageous to have allowances set against them. It incorrectly moves allowances back against non-savings/savings."

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