Restriction of savings basic rate band

Very technical question on tax calculation: Box L15b on page TCSN 46 of the HMRC tax calculation

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I can't think there will be many takers on this one.

Trying to reconcile why a client's basic rate band for savings income has been restricted in box L15b on page TCSN46 of the HMRC calculation - the formula seems to restrict this savings rate basic rate band to:

Basic rate band of £32,000 minus the client's Non-savings income minus the £500 Nil rate band

But why is this restricted in such a way?  Am I missing something?

It actually makes no difference to my client in this case as the amount not allowed to fall in the Savings basic rate band then falls into the non-savings basic rate band.

Complex madness!

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By Tim Vane
19th Jan 2018 23:34

What you are missing is that HMRC admitted over 6 months ago that their computation is often wrong. It took them around four months to fix the onine computation - I doubt they even tried to fix the paper one.

Box L15b is attempting to calculate the maximum savings that can be charged to tax at the basic rate.

It starts with the (extended) basic rate band, deducts from it the portion of the band that has been used by savings income, deducts the portion used by the nil rate band, and then deducts the portion used by basic rate lump sums.

The intention is that the resulting amount (allowing that negative amounts are to be treated as zero) will be the maximum basic rate band available to savings.

But it doesn't work in many cases. The first problem is that the lump sum figure should not be deducted, since lump sums are taxed AFTER savings and dividends. There are other problems (such as the nil rate band sometimes being double counted) that are all documented in HMRCs exclusions document.

Essentially you are wasting your time looking at the tax calc guide as it is garbage.

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By MC1
20th Jan 2018 10:03

Thanks Tim, that's very helpful indeed.
Glad to hear I am not going mad. The trouble with the exclusions is that it would take all day to read them all.

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