For 2016/2017 a client had the following:
- Employment income of £14,658.25, from which tax of £506.80 was deducted at source under PAYE.
- Self employment profit of £5,648.00
- Bank interest of £2.11
- Life assurance gain of £7,957 (notional basic rate tax of £1,591.40).
Without the life assurance gain the SA liabilty would be £1,354.45, i.e.
(£14,658.25 + £5,648.00 - £11,000.00 PA) @ 20% = £1,861.25
£1,861.25 - £506.80 = £1,354.45
With the inclusion of the life assurance gain our tax software comes up with the same result by restricting the notional tax (because £997.89 of the gain falls within the savings allowance and is taxed @ 0% - the remaining gain of £6,959.11 is taxed at 20% and the deductible notional tax is restricted to the resulting liability of £1,391.82).
HMRC's SA Tax Calculation allows a deduction for the full notional tax of £1,591.40, resulting in a liability of only £1,155.60.
Which is correct, please?
Many thanks in anticipation of your assistance and guidance.