Sue is 21 and works part time as a free-lance Italian interpreter, earning £4,500 a year. She also has some savings in the building society that earns about £1,800 a year interest, and which is paid on 1 April each year. Sue's total annual income is about £6,300, and because it is less than her income tax personal allowance she can receive her interest without tax taken off.
In 2011, because of a merger with another building society, the annual interest is not paid until 7 April. In 2012, and later years, the payment date is once again 1 April. The year the interest was paid on 7 April will change Sue's tax calculation because interest is taxable when it is paid. And instead of being paid in the year 2010-2011 as she expected, it has been paid in the year 2011-2012. A tax year runs from 6 April to 5 April. So in 2011-2012 Sue will receive 2 payments of £1,800 each, the first on 7 April 2011 and the second on 1 April 2012.
Sue's tax calculations for the years 2010-2011 and 2011-2012 look like this.
|
Gross |
Tax deducted |
|---|---|---|
Earned income |
£4,500 |
nil |
Interest |
nil |
nil |
Total |
£4,500 |
nil |
Less personal allowance |
£6,475 |
|
There is no tax to pay during 2010-2011
|
Gross |
Tax deducted |
|---|---|---|
Earned income |
£4,500 |
nil |
Interest |
£3,600 |
nil |
Total |
£8,100 |
nil |
Less allowance |
£7,475 |
|
Taxable income |
£625 x 10% |
= £62.50 tax due |
Sue should have cancelled her form R85. She will now need to contact her tax office to pay the tax due.
