Contractors, are you eligible to claim Marriage Allowance?

The ‘Marriage Allowance’ allows your husband, wife or civil partner, to transfer £1,260 (for the 2021/22 tax year) of their personal allowance to you, so it’s not to be sniffed at, writes Graham Jenner of chartered accountancy firm Jenner & Co.

Can contractors benefit from the allowance?

The Marriage Allowance (MA) only has any effect if:

  1. Their income is less than £12,570
  2. Your income is between £12,570 and £50,270

This means that the maximum net benefit is a tax saving of £252 (i.e. 20% of £1,260)

Contractors, IMPORTANT: If you are a higher-rate taxpayer, then Marriage Allowance is not available to you.

While the amount of the MA you end up with is not a life-changing amount of money for most contractors, it is relatively simple to make the claim (assuming you meet the criteria).

Not only that, but the claim can be backdated for up to four years – with the 2017/18 tax year currently the earliest year for which a claim can be made.

How to claim Marriage Allowance

The person giving up part of their personal allowances needs to make the claim, and this can be done online here on .gov.

Claims for earlier years can be done at the same time. Alternatively, you can telephone HMRC on 0300 200 3300, or write to them, to make the claim.

Positively, making the claim online is relatively straightforward. You need to have your National Insurance number and prove your identity, e.g. by giving details from your P60, payslips, passport or child benefit. You also need the National Insurance number of your spouse or civil partner.

Marriage Allowance claims: what to watch out for

Contractors, IMPORTANT: There are a number of organisations on the internet that offer to make the claim for MA for you -- but they usually take a fee from any repayment, and as the process is relatively straight forward, my view is that there really is no need to pay someone else to do it for you.

Next, consider that although the net benefit is 20% of the amount of your partner’s unused allowances, it is not possible to transfer only the unused allowances. The claim is an ‘all or nothing’ claim, i.e. the full Marriage Allowance of £1,260 is transferred.  This will mean that, if your partner’s income uses part of the £1,260 then although it will reduce your tax by £252, their tax will increase by 20% of the part previously used. In other words, the net saving is 20% of the unused part of the £1,260.

Contractor Marriage Allowance case study

Here’s an example of the above. Your income is £20,000 and your spouse’s is £12,000, meaning they have £570 of unused allowances. So £1,260 of allowances are transferred under the claim, reducing your tax by £252 (£1,260 x 20%), but increasing their tax by £138 [(£1,260 - £570) x 20%].

The net saving being £114, which is 20% of the £570 they were not using.

The amounts for earlier years are 10% of the personal allowances for that year

  • 2020/21 tax year: the personal allowance was £12,500, meaning £1,250 can be transferred (maximum £250 tax saving).
  • 2019/20 tax year: the personal allowance was £12,500, meaning £1,250 can be transferred (maximum £250 tax saving).
  • 2018/19 tax year: the personal allowance was £11,850, meaning £1,190 (rounded up) can be transferred (maximum £238 tax saving).
  • 2017/18 tax year: the personal allowance was £11,500, meaning £1,150 can be transferred (maximum £230 tax saving).

Where the Marriage Allowance is worth toasting

If you and your partner meet the criteria for all years back to 2017/18, that is up to £968 to come back to you, plus a £252 tax saving for the current year. So cause to toast your marriage – the allowance part anyway!

Contractors, IMPORTANT: If you operate through your own limited company, it is possible that your partner is receiving income from the company such that, along with other income they are receiving, they are fully using their tax allowances and so the Marriage Allowance will not necessarily be available.

Or vice-versa of course. In fact, all of the above has assumed that your income is higher than your partner’s and your income is over £12,570. However, if your income is lower than £12,570 and your partner’s income is greater than £12,570 (but less than £50,270) then you could transfer the Marriage Allowance to them!

Why covid-19 could make the MA relevant to you

The effect of covid-19 (whether you are a contractor operating as a sole trader or limited company shareholder/director) may mean your income is much lower than normal. This could mean your and your partner’s income, for the first time and because of the pandemic's impacts, falls within the bands outlined in the previous paragraph. The Marriage Allowance could then be transferred from you to your partner.

Contractors, IMPORTANT: If you use an accountant, but they do not complete a tax return for your partner, your accountant may be unaware that Marriage Allowance is available. Where you and your partner meet the criteria, this is a simple tax-saving measure. You have until April 5th 2022 to claim for the 2017/18 tax year – don’t miss out on it!

Thursday 26th Aug 2021
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Written by Graham Jenner

Graham is a Chartered Accountant and has run his own accountancy practice, Jenner Accountants Ltd, for over 20 years and is the MD of Nopalaver Group, which provides Umbrella company and other services to contractors. He specialises in dealing with family run businesses and contractors, supported by a strong team including 5 qualified accountants.

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