Marriage joins two people together in the eyes of the law. And with this comes several benefits, including the Marriage Allowance for tax. But who qualifies? And how much is it worth? Read on as Umbrella Broker explores the ins and outs of the marriage allowance for contractors.
What is the Marriage Allowance?
First introduced in April 2015, the Marriage Allowance is a tax benefit for married couples in the UK. In 2018, it has been extended to include couples in civil partnership too. Rather being an allowance in itself for married couples or civil partners, the Marriage Allowance enables you to transfer part of your tax-free personal allowance to your partner – and vice versa.
The personal allowance, currently at £11,850, is exempt from taxation for all UK individuals. But in some cases, you or your partner may earn less than this amount. With the Marriage Allowance, the lower earner in the marriage or civil partnership can transfer up to 10% of their tax-free income allowance to the higher earner.
From £11,850, that means you can transfer up to £1,190. At the 20% tax rate for £11,851 to £46,350, that’s up to £238 per year taken off your tax bill and added to your net income.
Contractor Marriage Allowance
Good news – contractors are eligible for the Marriage Allowance as long as they meet the criteria for other employees:
- You need to be married or in a civil partnership
- Your partner must earn less than £11,850 per year
- You must be a basic rate taxpayer. In short, this means your annual pre-tax income must be between £11,851 and £46,350.
Contractors earning above £46,350 are categorized as higher rate taxpayers. Unfortunately, that means they aren’t eligible for the Marriage Allowance. The same is true for additional rate taxpayers, who are earning over £150,000 before tax.
Additionally, the 10% your partner transfers cannot take their total earnings to over the £11,850 tax-free allowance. So, if they have earned £11,000 and transfer you 10% of their allowance – which would be £1,190 – it would take their total earnings to £12,190. In this case, they would be taxed on the £340 which exceeds the tax-free allowance.
Contractors applying for the Marriage Allowance
If you and your partner are eligible for the marriage allowance, you won’t be automatically enrolled. Instead, the lower-earning partner needs to apply for the allowance. In fact, millions of couples don’t claim the allowance despite being eligible.
To complete the applications, you will require the following…
- National Insurance numbers for both people
- Proof of identity for both people – such as a passport, driving licence, P60, last 3 payslips or the last 4 digits of a bank account which is used to receive child benefits, tax credits or state pension payments.
If you have this information and you’re eligible, the application should be both quick and straightforward. Best of all, applications can be made online.
Another thing that’s important to note is what to do when your circumstances change. HMRC will continue to transfer the tax-free allowance between your partner’s allowance and yours. If you get divorced, dissolve your civil partnership or your partner dies, HMRC needs to know immediately or you will be forced to pay back any falsely claimed allowances at a later date.
Receiving the Marriage Allowance
To transfer the allowance, HMRC generally changes tax code for both people. This automatically increases your tax-free allowance and reduces that of your partner. Alternatively, for self-assessment tax returns, the changed tax code will reduce your self-assessment bill.
After applying, it can take up to 2 months for the allowance transfer to take place. Don’t worry though, claims will be backdated to the start of the current tax year automatically. Because the Marriage Allowance was introduced in 2015, claims can also be backdated for previous years.
From 2015-16, the first year of the Marriage Allowance, it was worth £212. It rose to £220 in 2016-17, and to £230 in 2017-18. So, if you ask HMRC to backdate your Marriage Allowance claim, you could be in for an extra £662 on top of this year’s allowance of £238.
Let an umbrella company help
Like any tax matters, the Marriage Allowance is simpler through an umbrella company. Rather than processing it as part of your self-assessment returns, your extra allowance will be processed by the umbrella company before sending you a net amount as take-home pay.
It’s contracting without the hassle. And with Umbrella Broker, you can find the right umbrella company for you in minutes. Contact us today for more information.
