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Married couple AccountingWEB Is transferable marriage allowance more trouble than it’s worth?
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Is transferable marriage allowance more trouble than it’s worth?

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For a tax relief currently worth £252 a year, the transferable marriage allowance can cause a lot of headaches. ATT technical officer, David Wright provides some insight on how to avoid complications when claiming it.

24th May 2024
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The transferable marriage allowance (strictly called the transferable tax allowance for married couples and civil partners) has been with us since 6 April 2015. For ease of reference, I’ll use the GOV.UK terminology of marriage allowance (MA) and refer to spouses only.

The operation of the MA has barely changed since it was introduced, but this small tax relief continues to cause confusion, particularly where it interacts with self assessment (SA). The following reflects work done with HMRC to better understand how their systems work, and is intended to help agents make the most of this relief for their clients.

How does MA work?

The MA allows one party to a marriage to obtain a tax reduction where their spouse elects to reduce their own personal allowance entitlement. The eligibility criteria for the MA to apply are in ITA 2007 s.55C but broadly, neither spouse should be liable to higher or additional rate tax.

Where the transferring spouse claims the MA, they give up 10% of their personal allowance, rounded up to the nearest £10, so £1,260 for the current tax year. In exchange, the receiving spouse benefits from a basic rate tax reducer – so 20% of £1,260, giving a reduction in their tax liability of £252.

For PAYE-only taxpayers, both sides of the transfer are dealt with via their tax codes. For those in SA, the necessary adjustments are dealt with via the tax calculation. Claims can be made via SA, by phone, by applying for the MA online or by using the postal MA claim form.

What causes confusion?

HMRC stores MA claims on a master system, which is fed data both from claims made through SA and those using online/postal/phone methods. Depending on a couple’s circumstances, that master system will then transfer MA data to the PAYE system, the SA system, or both.

Agents report that MA entries shown on SA returns they file for clients are often overwritten – either to add claims where the tax return showed none or to remove a claim that had been included on a tax return – with a revised tax calculation issued showing the alteration.

From our work with HMRC, we understand the most likely reason for these changes is that an ‘enduring claim’ exists on the MA master system, which is then transferred to the SA record, overwriting any entries on the tax return.

Enduring claims

Enduring MA claims generally do what they say on the tin – they roll forward from one year to the next unless cancelled.

Claims only become enduring when they are made outside of SA and include the current tax year (including multi-year claims covering the current tax year and earlier years).

The result is that a claim made online, by post or by phone, for the current tax year will roll forward to future years. By contrast, a claim made in the same way but for previous years only (the MA can be claimed up to four years after the end of a tax year) will not become enduring.

Claims made through SA have to be made each year; they do not become enduring.

According to the relevant legislation, an enduring claim should lapse if a couple becomes ineligible for the MA transfer in any one year – for instance if one spouse receives a bonus, which makes them a higher-rate taxpayer that year. In this situation, the enduring MA claim should strictly lapse, with the couple then able to claim the MA again in a later, eligible year.

However, HMRC have been unable to confirm whether their systems support this. They recommend notifying them if a couple who have an enduring MA claim in place cease to be eligible in one year, to avoid the claim being incorrectly rolled forward.

How do you spot an enduring claim?

Where an enduring claim exists, the transferor’s PAYE code will have an ‘N’ suffix and the recipient’s tax code will have an ‘M’ suffix (easy memory tip: M indicates transfer froM the spouse).

If your client doesn’t have any PAYE income, you’ll need to contact HMRC to find out whether an enduring claim exists – the information should be shown in your client’s personal tax account, but unfortunately isn’t visible via the agent’s account.

What does this mean for taxpayers in SA?

Much of the MA confusion for agents appears to stem from enduring claims and the interaction between the MA master record and the SA system. Where an enduring claim exists, returns filed which include MA claims can fall out of HMRC’s automated tax return processing system, requiring the agent to contact HMRC to resolve the issue. The following tips can help you avoid this.

Both spouses in SA, no enduring claim

Where no enduring claim exists and both spouses are in SA, the best practice is to submit the transferor’s return first, then allow a delay for processing before submitting the recipient’s.

Guidance on GOV.UK was recently updated to confirm this previously informal recommendation and suggests a three-day delay between submissions.

Remember that MA claims made through SA do not become enduring, so this type of claim will need to be made each year, assuming the couple remains eligible.

One spouse in SA, no enduring claim

If your client in SA is transferring the MA to their spouse, completing the MA transfer boxes on page TR5 of their tax return should result in their spouse’s PAYE record being updated to reflect the transfer. A revised P800 should be issued to their spouse, along with a tax refund.

Since claims made via SA aren’t enduring, this will need to be an annual process.

If the client in SA is the recipient of an MA transfer claim made by their spouse retrospectively, HMRC should issue a revised SA tax calculation once the retrospective MA claim has been processed.

I refer to retrospective claims only here because claims made in the year, for the year in respect of which you’re preparing your client’s tax return, should become enduring since the spouse outside of SA must have made the claim via phone, post or online methods. This would show as an ‘M’ suffix on your client’s PAYE code (assuming they have one), allowing you to spot the claim when preparing your client’s return.

Either or both spouses in SA, enduring claim exists

If you become aware that an enduring MA claim exists for your client when preparing their return, for instance, because an ‘N’ or ‘M’ suffix is shown on their PAYE code, the recommendation is to leave the MA boxes on the return blank in order to avoid delays in it being processed. Assuming the eligibility criteria are met, HMRC will issue a revised tax calculation after the tax return has been filed, to show the MA transfer.

The obvious downside to this advice is that when you send your client’s return for approval, the tax calculated won’t be correct, as it will not factor in the MA transfer.

At the time of writing, there is no perfect solution to this – completing the MA boxes on the return will show the correct tax position for your client, but risks processing delays if the return falls out of HMRC’s automated processing system. Leaving those boxes blank should allow the return to be processed smoothly, but you will need to explain to your client why the tax computation differs from their expected final position for the year.

HMRC advises agents to take the second course of action but assures us a more satisfactory solution is being worked on. In the meantime, good communication with your client will be needed to explain the position and ensure they know their expected final tax liability or repayment for the year once HMRC has issued the revised tax calculation.

Replies (8)

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By Paul Crowley
24th May 2024 14:39

It is one of the tax allowances that should be chucked in the bin. If I charged for the time I spent messing about with it it would negate a lot of the benefit.
I get an amended tax calculation for every client that gives or receives even though the return went in correctly showing the position.

'At the time of writing, there is no perfect solution to this – completing the MA boxes on the return will show the correct tax position for your client, but risks processing delays if the return falls out of HMRC’s automated processing system. Leaving those boxes blank should allow the return to be processed smoothly, but you will need to explain to your client why the tax computation differs from their expected final position for the year.

HMRC advises agents to take the second course of action but assures us a more satisfactory solution is being worked on. In the meantime, good communication with your client will be needed to explain the'

HMRC are saying that clients should submit incorrect returns? They are having a laugh.

Thanks (5)
Replying to Paul Crowley:
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By FactChecker
25th May 2024 19:02

It's far worse than being told (technically it's 'suggested') by HMRC to file incorrect data.
They already do plenty of that and indeed mandate it (e.g. paying an IR35 as a 'deemed employee' when they insist that 'employment start date' is submitted even though in legal terms there is no such thing - but reject the file if it doesn't have this false data, or fine you if you therefore omit that person from your FPS)!

But to my point ... the article is an excellent piece of forensic archaeology and lays out all the bits of HMRC (lack of) 'reasoning' that got us to this particular set of bodges.
However it pulls its punches at every turn ...

1. "For PAYE-only taxpayers, both sides of the transfer are dealt with via their tax codes (whereas) for those in SA, the necessary adjustments are dealt with via the tax calculation" ... AND those two methods aren't processed in the same way using the same set of rules.
Those two fundamental deficiencies are *entirely* within the purview and remit of HMRC ... so any 'workarounds' imposed on taxpayers to correct HMRC-induced errors are tackling the wrong end of the issue.

2. "Agents report that MA entries shown on SA returns they file for clients are often overwritten – either to add claims where the tax return showed none or to remove a claim that had been included on a tax return."
Given that HMRC are aware that many (possibly the majority) of these particular 'overwrites' will need to be reversed, it would be more efficient (for everyone bar possibly HMRC) to suspend the routine that applies those automatic over-writes - and instead make it raise a query for the taxpayer to confirm (preferably via on online form) which status is required. [It IS meant to be a 'claim' after all.]

3. "Claims only become enduring when they are made outside of SA and include the current tax year (including multi-year claims covering the current tax year and earlier years). Claims made through SA have to be made each year; they do not become enduring."
Doesn't really require comment ... other than to say, as per point 1 above, this cack-handed 'solution' is owned by HMRC - so *they*, not the hapless taxpayer, should sort it out.

4. "the best practice is to submit the transferor’s return first, then allow a delay for processing before submitting the recipient’s."
This is the one making my blood boil ... in no known world could this possibly be described as 'best practice'!
It is an *essential* workaround to the incompetent processing free-for-all with which HMRC treats submitted files (see the impact on a taxpayer of the random order in which HMRC process the FPS from their previous ER and that from their new ER).
So (a) it's not just a kindly suggestion; (b) even a 3-day gap is no guarantee that HMRC will actually process in the 'correct order'; (c) there is actually no 'correct order', just yet another deficiency in HMRC's processing rules - either because it never occurred to them or just to save money.

If this is all beginning to sound the same warning bells that have been ringing all week as Vennells squirms in the PO Enquiry, it's because Harra operates a similar culture ... and the fallout is coming.

Thanks (6)
Ivor Windybottom
By Ivor Windybottom
24th May 2024 14:56

Whilst we must not overlook the benefit this provides some lower-income married couples, the benefit of £250 is not cost-effective for HMRC to administer or for accountants to claim.

If it was more straight forward to administer there could possibly be a limited justification for retaining it, but in its current form it should be scrapped.

Unfortunately politicians struggle to increase taxes for targeted minorities of the population, so our dreams of less complexity will remain just that.... dreams.

Thanks (4)
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By Not Anonymous
24th May 2024 17:15

"According to the relevant legislation, an enduring claim should lapse if a couple becomes ineligible for the MA transfer in any one year – for instance if one spouse receives a bonus, which makes them a higher-rate taxpayer that year. In this situation, the enduring MA claim should strictly lapse, with the couple then able to claim the MA again in a later, eligible year.

However, HMRC have been unable to confirm whether their systems support this."

From my experience it does, once the tax year has ended. When HMRC's reconciliation process takes place and higher rate liability is established then the application is cancelled for years subsequent to the one higher rate liability occured in.

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Tornado
By Tornado
25th May 2024 13:30

In have one client whose 2023 Tax Return was filed some 6 months ago but it has not yet been processed. He has paid the correct SA Tax which shows as an overpayment at the moment. His wife's 2023 Tax Return has been processed correctly with a reduced personal allowance.

My client has done everything correctly, but I do not have time to chase HMRC to just process his Return. Eventually I expect HMRC will get around to processing the Return, especially as the 2024 Return will be submitted shortly.

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By wblewis
28th May 2024 09:14

The simple answer is that enduring claims are far more prevalent than HMRC will admit and it is difficult to cancel a claim. I speak from personal experience.

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Cleethorpes beach
By UpTheMariners
28th May 2024 17:22

Definitely more trouble than it’s worth (to me that is)

I get about half a dozen clients a year contact me about this asking why we haven't "claimed" marriage allowance, when they are set up as a 50%/50% partnership or a 50/50 husband and wife director/shareholder of ltd or when the husband/wife are both higher rate tax payers. It always takes a bit of time explaining that there will be no benefit. Some argue back as they've heard it from a celebrity expert on TV that it's a simple way to get £250 from the government. All time I should be billing them for but usually don't.

And then there are the ones that "claim" it without telling you and you get the updated SA302 through the post. One couple we'd carefully arranged the salary and dividend so they were always paying about £950 tax each personally and therefore under the dreaded payments on account. And then the wife decided to "claim" it in January without telling me. So in February the husband got a bill for about £700 plus late payment charges and interest as it had pushed him over the POA threshold. Course they assumed it was all my fault. It took longer than I could ever bill for to calm them down and explain just why they shouldn't make tax decisions without contacting me first. I was annoyed at them so told them they have to contact HMRC themselves to cancel it.

I hate it.

Thanks (1)
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By Helpful Harry
01st Jun 2024 14:38

The question asked was "Is transferable marriage allowance more trouble than it’s worth?"
The answer is "Yes!"
The reasons: Please refer the to answers given above.

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