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Marginal rate relief

HMRC's computers check the amount of marginal rate relief claimed on a tax return against their own calculations and if the amount if different by more that 0.99 the return is rejected on submission.

In the first version of the VT tax comp (June 2011 issue 1), VT apportioned the upper limit to a tax year using the following formula:

Upper limit for tax year =1,500,000 x Days in accounting period falling in tax year / Days in tax year

Where:

Days in tax year is 365 unless the tax year contains 29 February in which case it is 366

In the opinion of VT Software, this formula is correct and caters for all circumstances such as when the limit changes and for leap years. However, HMRC use this formula only when the limit changes (which in practice it never does). In all other years HMRC deem the number of days in a tax year to be 365 unless the number of days in the accounting period is 366. This gives some odd results such as giving the full upper limit of 1,500,000 to company that has shortened its accounting period by one day but that includes 29 February (such as the period 1 April 2011 to 30 March 2012).

The differences between the two methods are small. Nevertheless, you are obliged to follow the HMRC method or else your return will be rejected in leap years. VT therefore changed its formula to comply with HMRC in the July 2011 version 1 edition. There is only a difference for periods that end on or after 1 April 2011 (and these cannot be filed electronically until October 2011).

If you have already started a new workbook in the June 2011 issue 1 edition, you can correct the formulas by copying and pasting the following expression into cells H46 and H47 in the Total days in tax year column on the TaxComp sheet:

=IF($G$48=366,366,365)

If you still have the June 2011 issue 1 edition installed, click here to download the latest version.