Understanding your MTD tax calculation

Do not get overly concerned by the in-year calculations you may see in untied, and in particular the HMRC one for MTD which is still in development.

Calculation overview

There are two tax calculations that you may see in untied.

One from untied, and the other from HMRC which appears in the MTD section (if you are registered and live in MakingTax Digital).

They won't generally match up and this article gives you a bit more background - generally see it as a guide rather than anything more.

Your untied calculation

untied has a built-in tax calculation for each tax year, showing in summary at the top of the screen and in detail by clicking on tax breakdown. This is intended to be indicative.

Completed years

For years that have been completed, the calculation is based on your total entries, including full year allowances based on HMRC rates, and testing against HMRC logic.

Current year

We have experimented with different ways of showing this in the current year.

We have settled on treating it as if a year is completed. So if by 5 October you have taxable income of £12,500 it will show no tax is due (since your taxable income is less than the personal allowance of £12.570).

Figures for the current year are indicative only. We generally use the logic for the previous year, until we get HMRC confirmation towards the end of the year that there will be no more in-year changes, and they confirm that we are able to file for that year ... this will be in February usually. (Otherwise we are chasing all sorts of announcements which have in the past been reversed.)

HMRC calculations

If you are in MTD, HMRC also carries out tax calculations but uses slightly different logic. They spread out your allowances and try to project your end of year tax. However the calculation is in development and may not yet be accurate.

These appear in untied under the MTD section - the calculation is theirs, and uses their data not ours.

The key thing to note is that they spread the personal allowance (and the rate bands) over the year according to the date of your most recent update.

So by 5 October, you are half way through the tax year ... and you have income of £12,500, HMRC caculations will indicate tax due ... as they are effectively spreading your personal allowance across the full year. It's not the way the allowances work from a legal point of view, but is just how it is being presented by them to be helpful.

Underneath this you will see a breakdown that is tailored to whatever your income sources are. It will show how the allowances have been allocated (which should be in the most advantageous way for you).

You will also see an amount for "Total income tax and nics due". This is neither an amount due, nor a total for the year. Rather it is an indication of tax on what you've earned so far this year, if your personal allowance were spread evenly.

You may also see an estimate for the full year, as if you were to keep earning at this rate ...