Decision Makers Guide - DMG38102

Calculation of deduction for notional income tax: Tax allowances for periods of less than a year

Tax allowances (Appendix 1) are annual amounts to be set against annual income. If the assessment period
1) is a period of less than a year, the decision maker should use only a proportion of the appropriate tax allowance in calculating notional income tax. The decision maker should calculate this proportion on a pro rata basis based on the number of days in the assessment period
2) has been shortened, DMG32201 applies.

Round down any fraction of a penny if the proportion of the tax allowance ends in such a fraction.

Example

Date of application falls in the 1998/99 tax year, and the applicant is entitled to a personal allowance of £4,195 and an additional personal allowance of £1,900 in that year. The assessment period is from 1.5.99 to 31.10.99 (184 days), which is less than a year.

The allowances on a pro rata basis are

£4,195 x 184 = £2,114.73, rounded down
365

£1,900 x 184 = £957.80, rounded down.
365

Note Where a person is also an employed earner paying tax under PAYE arrangements, the decision maker should use only the balance (if any) of the tax allowances remaining in calculating notional income tax on self-employed earnings.