childrens tax credit 2002/3

The old Children's Tax Credit was worth 529 if you were both basic rate taxpayers (there was an extra 520 if you had a baby).

However if either of you were a higher rate tax payer that year, they reduced the amount of the credit by 1 for every 15 you were into the higher rate (based on the highest earner if you were both into the 40% tax band).

They gave the tax credit by an adjustment to your PAYE code, but because it was a crappy Gordon Brown tax credit rather than a proper allowance, the PAYE system couldn't cope with it. They had to guess your income, and if they got it wrong you could end up owing them a large amount, sometimes even larger than the credit itself.

As an example, if they guessed you'd be a basic rate taxpayer, they would have added 2404 to you tax free amount in your tax coding (saving you 2404*0.22 529 in tax).

If you actually earned 3000 into the higher rate, then that 2404 extra would in fact have saved you 2404*0.4 = 962 in tax, and this was compounded by your entitlement to the CTC being reduced to 529 - 3000/15 = 329. So you would have paid 633 too little in tax!

"Andy Pandy" wrote

"Owing them"?? That's an interesting spin on the situation - you actually meant: "if they got it wrong, you could end up getting a **tax-free loan from IR** for a while because you'd initially be underpaying your tax"!

Still means you owe them money

No I didn't, I meant what I wrote. The PAYE system was designed to ensure that the correct tax was deducted from your employment income. Obviously if you have other income (interest, dividends etc), you could end up owing more tax, most people realised that, since the PAYE system only knows about your employment income.

What many (most?) people did not realise, was that even if your employment income was your *only* income, if you claimed the CTC the PAYE system still couldn't deduct the correct amount of tax without guesswork. Most people, believe it or not, don't bother or even know how to check that the correct amount of tax is being deducted from their employment income. They don't really need to, since by and large PAYE does a good and accurate job of it. What it couldn't cope with was the crappy overly complex way the CTC was implemented. A

"Jonathan Bryce" wrote

Only money that you shouldn't have received in the first place. Tell you what - if you'd like to send me million for a while (interest-free), then I'll *happily* owe you a million!!

"Andy Pandy" wrote

Ah, but it doesn't. It is only a "good guess". Ask anyone with a 'BR' tax code in one job, and insufficient earnings in another job to cover their tax allowances!

"Andy Pandy" wrote

Doesn't surprise me. Perhaps they ought to take more notice of their financial situations?

Yes, but they've got 2 jobs, so there are "other earnings" as far as each employment's PAYE is concerned. Employer A doesn't know how much employer B is paying you so their PAYE system can't possibly guarantee to deduct the correct amount of tax. That's pretty obvious. What isn't is why the PAYE system can get it so wrong when their only income is from the one and only job they've got, so the employer's PAYE system has full details of their total earnings.

Why should they? That's what PAYE is for.

Similarly If I buy a bottle of wine or fill up with petrol I don't know nor care how much tax should be charged, I just assume the tax is correct. I don't calculate it myself to check it's right, and I don't expect HM C&E to send me a bill if the retailer charged me too little tax.

"Andy Pandy" wrote

Agreed.

"Andy Pandy" wrote

But you need to consider it as though the person has two employers, where "Employer1" is the (one) employer, and "Employer2" is the *IR*.

As you've already pointed out, the problem with underpayment of tax is actually because the IR ("Employer2") doesn't have details of the employer's ("Employer1") pay :- ...

"Andy Pandy" wrote

So IT IS EXACTLY THE SAME REASON as for the person with two jobs!!!

"Andy Pandy" wrote

Eh? Nope - PAYE is to get "close to" the correct tax, deducted as you go along. If it gets it wrong, you are still liable to pay the correct tax (just as you can get a refund at the end of the year if PAYE deducts too much).

"Andy Pandy" wrote

HM C&E would send the tax bill to the retailer in that situation. But there's a subtle difference though - with tax on wine/petrol etc, the

What are you on about? The reason PAYE may not deduct the correct amount of tax for a person with 2 jobs is that each PAYE system doesn't have the person's full income details.

But if it wasn't for the CTC, a person whose only income is from their one and only job *will* get the correct amount of tax deducted via PAYE, assuming their tax code was correct and included any benefits in kind etc. Which it normally would be as the employer notifies the IR of these things. There was *no need whatsoever* for the IR to have to guess how much you'll earn in order for the PAYE system to deduct the correct amount of tax. It's only the CTC which screwed this up.

See above.

Really? So I can ask my employer to stop deducting tax via PAYE and settle up with the IR myself at the end of the year can I?

Yes, very so! - unless & until the system is changed (which we all know you're crazy about) ...

Not So! at alllllllll

if a family have a legitmate claim for the whole of one year between Apr - Apr, they WONT pay anything back!!!!!!! - That's a Fact !

just be careful, where abouts in the fiscal year you qualify

Further to this, some families might be earning good money for the first 6 months of the year (April-nov) and then find themselves with no income. It is possible that this family would be entitled to 0 in the next 6 months as they have already earned the money - they would be expected to have saved !! People/families do not work on a year by year basis. Some families might only need help for a few weeks/months but this system will not allow that.

"JethroUK" wrote

... which is why what I said was correct - look at it again.

"Andy Pandy" wrote

The person is getting some money from their employer (let's call him "Employer1") and some - the CTC - from the IR (let's call them "Employer2").

The IR ("Employer2") doesn't know how much the "other" employer ("Employer1", the real employer) is paying the person, which is why the PAYE tax code is wrong - just like the situation where "Employer1" & "Employer2" are separate real employers.

Just because "Employer1" may have full details, does not mean that they can amend the PAYE tax code. Only the IR can do that - and they don't have all the details. If, of course, someone told them the full details, then the PAYE tax code could easily be corrected (swiftly & accurately).

"Andy Pandy" wrote

See above.

"Andy Pandy" wrote

... just like the IR doesn't have details of the person's full income details with 'one employer + CTC'.

How come you're happy on the one hand that two employers can't do PAYE accurately (because they don't know each other's details) - but on the other hand you can't see that the IR doesn't have the full details in the situation that you are complaining about?

"Andy Pandy" wrote

That's simply not true.

Take MIRAS for instance (a while back) - when the rate of relief was restricted so that high rate taxpayers did not attract relief at their full marginal rate. The amount that the PAYE tax code was increased depended on how much the taxpayer earnt!!

"Andy Pandy" wrote

Where? What are you trying to say??

"Andy Pandy" wrote

You cannot do that for the same reason that the retailer also can't turn round to HM C&E and say "I won't pay the VAT over each quarter as I'm meant to, I'll save it all up until the end of the year and settle up then." Just because someone is responsible for something doesn't mean they don't have to follow the rules!

The old CTC was not an "income", it was a reduction in tax. It was no more an income than a tax allowance is.

The PAYE system was designed to cope with allowances, not tax credits, as I said about 15 posts ago. An analogy with someone with two jobs is non sensical. PAYE could easily have been enhanced to cope with the CTC had it remained. Simply by using a letter in the tax code denoting eligibity for the CTC, which would instruct the system to:

a) Reduce the annual tax by the amount of the CTC b) Have a 46.67% tax band between the higher rate threshold and the higher rate threshold + 15 times the CTC

(The value of the CTC would be known to the PAYE system as it would be published along with the year's tax bands).

Then it would have deducted the correct amount of tax for someone with no other income.

See above.

Er, do you know what MIRAS stood for? The clue is in the last two letters, "AS". Anyone getting MIRAS after the rate was restricted wouldn't have had it affect their tax code at all, as it was all done at source. It fact they wouldn't even have needed to mention it on their tax return.

not at all - you refered to repaying tax credit as "money that you shouldn't have received in the first place" - i've just demonstrated that "some" people pay it back and "some" dont - dependant only upon whereabouts in the fiscal year you claim - that's just plain wrong

precisely my point - it's a total sham

"Andy Pandy" wrote

Now you're just arguing semantics. Forget what they're called and see them for what they are: lumps of money from two different sources.

"Andy Pandy" wrote

Similarly, the PAYE system could be enhanced to cope with the situation of two employers. But it hasn't been. So what?

"Andy Pandy" wrote

What are you trying to say, that an enhancement to PAYE could cope with CTC - just like an enhancement could cope with two different employers? Neither enhancement was made, so the comparison is similar.

"Andy Pandy" wrote

Again, the above is simply not true (not for everyone at least). The tax code was changed if you had a beneficial (low-rate) mortgage from your employer.

"JethroUK" wrote

You need to consider the context. We were talking about the situation where a tax code was altered assuming the person was a basic rate taxpayer, but they were actually a high rate taxpayer. This meant that the tax code was amended inappropriately, giving **too much** tax relief. In that case, it is true that the person "shouldn't have received [it] in the first place".