Here I am, fifty four years on the planet, over fifteen of them studying, over thirty of them working in corporate business and I still can’t work out my tax code’s relation to my pay. I can get it close but, for some reason, when I apply my code to my gross salary, I can’t get it exactly match what I see as my net pay in my pay packet. This drives me rather bonkers. Is it me or is it them, the tax boffins, and how we calculate percentages? Or is it because they’ve made it so complicated to someone who, I admit, has been intimidated by numbers since Primary Six in school, when I was aged about ten years old, and a male teacher went ballistic at me for failing to grasp the “simple” arithmetic involved with fractions?
I mean, if my gross salary is £50,000 and my tax code is 1,300L (say), then – simply – I should be taxed on £37,000, shouldn’t I? As I understand it, my tax code of 1,300 equates to a sum of £13,000 that I can earn tax free. Ah, but I take a company car allowance, plus the company private health scheme. And I also contribute to a company pension. Oh, and I shouldn’t forget my National Insurance contribution either.
Of course, the pension contribution is on the positive side because that’s a taxable allowance. I get tax relief on that. Just don’t ask me where.
I was chatting to one of the finance guys at work the other day on company cars – because I was thinking of taking one with all my petrol paid – and was trying to work out what was the better deal in my wage packet, after tax. As stated above, I currently use my own car and am paid an allowance (taxable) for that.
“Oh by the way”, he said, “Are you claiming the difference between your business mileage contribution paid by the company (13p a mile) and what the taxman allows?”
“What?” I asked, perplexed.
“HMRC allows you 45p a mile for miles done on company business. So the difference, 32p, multiplied by your annual mileage – you’ll get tax relief on that.”
Really? That’s nice of the taxman to tell me, which he didn’t. This is similar to pension relief if you are a higher rate taxpayer. You’re entitled to it, but the government isn’t shouting about it. For years I failed to claim that additional twenty percent through simple ignorance. It literally cost me thousands and today, according to my mate who’s an IFA, this nets the government millions. There are plenty of people making the same mistake as I did, not claiming their full tax relief on their pension contributions. Although it’s not a “mistake” as such, just a massive and costly gap in your knowledge
What else am I missing here? What other gaps do I have? What about charity donations? I donate to charities by direct debit every month and suspect I might be due tax relief on this, but I’ve never bothered to look into it. So I can add “laziness” to “ignorance”. At least I suppose this is a “known unknown”, but what about my “unknown unknowns”!
Never look a gift horse in the mouth though, unless it’s the taxman giving you the horse – in that case, check the numbers! I am good at submitting monthly expenses backed by receipts, so my annual mileage was easy to calculate. Next I logged on to my self-assessment account, made the relevant entry (not easy to find) and entered the cost differential on my calculated business mileage. Nice one!
To be fair to HMRC, the tax rebate was in my bank account less than a week later, along with the e-mail telling me my tax code had changed as a result of my efforts. Which leads me back to the start of this blog post – my code had changed, so what would my next net wage packet be?
Needless to say, until it turns up, I’ve nothing but a rough idea, give or take fifty quid. Which, I tell myself for the thousandth time, just isn’t good enough! And, thinking about it, that was what the teacher in Primary Six used to shout at me when I couldn’t calculate four fifths of eighty three. From today’s perspective, I think I blame him more than I blame the taxman when it comes to the numbers.