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Interesting little difference

I managed to download my draft tax return the other day. Today, with the help of Google and the WordReference dictionary, I made sure that I understood it. Good news, they are going to give me most of my tax back because my wage is so low. Hang on, is that good news?

Anyway I went through the tax return line by line.

Fortunately mine is very simple. By an agreement between the tax people in the UK and the tax people here I pay UK tax on my pension. That leaves my Spanish tax return just about my earnings here. I pay tax on my salary every month and, at the end of the tax year, in December, they do the sums to see whether I owe them money or whether they owe me money.

There are two main types of tax allowance on my salary. The first is a lump sum. This is a disregard of a part of my earnings based on a reasonably complicated formula which gives more back to poor people than it does to rich people. The maximum disregard is just over 4,000€ and the minimum 2,650€.

The interesting bit is the next bit. Total taxation, divided between the National and Regional Governments is just over 24%. There is a second personal allowance of 5,150€ but this isn't expressed as a lump sum instead it is subjected to the same tax calculation as my earnings and then taken off my tax bill.

So let's pretend you earn more than me. Let's say 20,000€ after you've paid your share into the Social Security system. First the tax people take off the lump sum described above.  This leaves you with 17,350 (20000-2650). They then tax you at 24% on the remainder. So they want 4164 in tax (17350 x 24%). But then they do the same sum on the second 5150 tax allowance (5150 x 24%) to give you the figure for this second tax allowance. The result in this example is 1236. They take this 1236 off their original tax calculation (4164 -1236) leaving you with 2928 to pay in tax on the total 20,000€ income.

I was very happy with their sums. I clicked on accept on the website. It should turn up in my bank account within the next week.

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