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Tax code beginning with K
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# 1
Newly retired
Old 17-04-2008, 3:56 PM
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Default Tax code beginning with K

I have just got a new tax code K341 as I owe some tax. Whilst I understand how this figure has been reached, I can't get my head round how this will affect my income. Can anyone help please?
I receive 3 pensions: State ( gross, approx £100 per week), final salary pension and a small annuity, both paid monthly.
So far, only the FSP has been taxed, but at 218L last year, to take account of the state pension. I am under 65, have no other allowances, no benefits or pension credits, savings are paid gross (ISAs ) or taxed at source.
For the sake of simplicity, say I get £1000 a month. How does the K341 apply please?
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# 2
fengirl
Old 17-04-2008, 4:03 PM
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if your income is £1000pm, annual income £12,000
less personal allowance 5435
Taxable 6565 @ 20% = £1313.

This will be your total tax bill for the year, so you will pay £109 tax per month. I can't tell you where this will be deducted from without knowing the codes for the FSP and the annuity.
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# 3
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Old 17-04-2008, 4:13 PM
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Many thanks fengirl. My tax code as I said is K341. This will be applied to my final salary pension, and will take account of my state pension and underpaid tax.
Not sure about the annuity, as, though I told HMRC about it, they have not changed the tax code. Are you suggesting I will get a separate code for that?
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# 4
bigheadxx
Old 17-04-2008, 4:17 PM
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The K code is used when your untaxed income (State Pension as this CANNOT be taxed at source) is greater than your tax free allowance.

There for in your case K341 means that your untaxed income was 3410 more than your tax free allowance. This means that 3410 has to be added to your total taxable income to ensure you pay the right amount of tax.
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# 5
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Old 17-04-2008, 4:23 PM
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Sorry if I'm being a bit thick here. I understand those words, bigheadxx, but how will it work in figures in my case?
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# 6
jem16
Old 17-04-2008, 4:33 PM
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Quote:
Originally Posted by Newly retired View Post
Sorry if I'm being a bit thick here. I understand those words, bigheadxx, but how will it work in figures in my case?
If you take the example that fengirl gave of £12000 income over a year. With a normal tax code of 543L you would pay £1313 in tax. With a tax code of K341 you will pay £3082 in tax per annum or £256.83 pm. This is because your state pension is received gross so you have to pay the tax for that through your final salary pension.

Your annuity pension should have the code BR applied to it which means the whole lot will be taxed at 20%.

Have a play at this site as you can put in your amounts and code and see what effect it has.

http://www.listentotaxman.com/
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Old 17-04-2008, 4:59 PM
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Many thanks jem16. That's a really useful site too.
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# 8
bigheadxx
Old 17-04-2008, 5:48 PM
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If you are over 65 then your personal allowance is 9,030. Upto 65 your allowance is 5435. K341 would indicate that HMRC assumes that your untaxed income is either 12440 or 8840. So if your income is 12,000 per annum HMRC add 3410 to this figure, giving a total of 15410.

If you take your personal allowance of 5435 (if under 65) you are left with a taxable figure of 9975.

20% of 9975 is 1995 per annum which equals 166.25 per month. Your pension scheme should therefore be taxing you at 166.25 per month to take account of all of your taxable income.
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# 9
Mikeyorks
Old 17-04-2008, 6:29 PM
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Sorry - that's wrong.

The personal allowance is Minus £3410 (because of the state Pension + previous year underpayment) You have to add the £3410 to the £12000 income - and tax is paid on the resultant £15410 @ 20% = £3082.

As in post #6
If you want to test the depth of the water .........don't use both feet !
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# 10
bigheadxx
Old 17-04-2008, 6:48 PM
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As I said above you add the 3410 to your total taxable income. If your total income is 12,000 then your taxable income is 12,000 minus your personal allowance of 5435 which is 6565. 6565 plus 3410 is 9975 as in 8 above.

Everybody gets a personal allowance. 9 above is taxing ALL income. The K code works by showing how much has to be added to your taxable income so that you pay the right amount of tax.
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# 11
bigheadxx
Old 17-04-2008, 7:18 PM
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For Example: If you have a total pension income of 16,035 (6035 from the state and 10,000 private)per annum and you are under 65

Your personal allowance is 5435, you therefore pay tax at 20% of 10600 which is 2120.

As your state pension cannot be taxed at source there has to be a mechanism in place for your pension company to deduct the right amount of tax otherwise they would tax you at (10,000-5435=4565) *20% which is 913 per annum.

Therefore if you have a state pension of 6035 per annum your tax code would be K60, indicating that you have untaxed income of 600 (60*10) above your personal allowance.

If your tax code is K60 then your pension provider knows that you have untaxed income of (5435+600) which is 6035. It will therefore add 600 to your total taxable income so that you pay your full tax liability. In this case 10,000 plus 600 meaning that you pay the correct amount of 2120. If you have only a State Pension then you have to pay your income tax via self assessment because there is no other mechanism for you to pay it.
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# 12
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Old 17-04-2008, 8:09 PM
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Quote:
Originally Posted by bigheadxx View Post
As I said above you add the 3410 to your total taxable income. If your total income is 12,000 then your taxable income is 12,000 minus your personal allowance of 5435 which is 6565. 6565 plus 3410 is 9975 as in 8 above.
Fine but you are forgetting something. The OP asked what difference a K341 code would make on an income of £1000pm. This £1000pm will not include the untaxed income of £8840 that resulted in the K code. So the total taxable income is £20,840. Take off the personal allowance of £5435 and that leaves £15,405 which taxed at 20% is £3081 or £256.75 which is what I said in Post 6.

Mikeyorks has then shown how to do this by adding the £3410 to the taxable income and taking it at 20% which is £3081 - exactly the same.

Quote:
Everybody gets a personal allowance. 9 above is taxing ALL income. The K code works by showing how much has to be added to your taxable income so that you pay the right amount of tax.
Exactly but you have forgotten to add in the untaxed income in your example.
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# 13
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Old 17-04-2008, 8:15 PM
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Quote:
Originally Posted by bigheadxx View Post
For Example: If you have a total pension income of 16,035 (6035 from the state and 10,000 private)per annum and you are under 65

Your personal allowance is 5435, you therefore pay tax at 20% of 10600 which is 2120.
Or another way as Mikeyorks did is to take the £10,000 private pension and add £600 from the K60 code and you get £10,600 taxed at 20% which is £2120 - exactly what you said.

However in the case of the OP you forgot to add the untaxed income and so gave the wrong calculation.
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Mikeyorks
Old 17-04-2008, 8:43 PM
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Quote:
Originally Posted by bigheadxx View Post
As I said above you add the 3410 to your total taxable income. If your total income is 12,000 then your taxable income is 12,000 minus your personal allowance of 5435 which is 6565. 6565 plus 3410 is 9975 as in 8 above.

Everybody gets a personal allowance. 9 above is taxing ALL income. The K code works by showing how much has to be added to your taxable income so that you pay the right amount of tax.
So question yourself as to how you derived the wrong answer? You can't add the negative £3410 to the income and then deduct a pa of £5435 ...... as the £5435 has already been neutralised in arriving at the negative £3410!
If you want to test the depth of the water .........don't use both feet !
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# 15
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Old 17-04-2008, 11:00 PM
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Many thanks for all your explanations.
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# 16
bigheadxx
Old 18-04-2008, 6:27 PM
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Yes I see that now. Thanks for your determination that I get it right.
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# 17
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Old 18-04-2008, 6:38 PM
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Quote:
Originally Posted by bigheadxx View Post
Yes I see that now. Thanks for your determination that I get it right.
It's more important that the OP doesn't get the wrong information than it is trying to get you to get it right.
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# 18
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Old 22-04-2008, 6:58 PM
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Ok I have just spoken with HMRC and checked their version. They have confirmed that my annuity will get a BR code, so will be taxed at 20%. My main pension will bear the tax for itself , plus the state pension, plus arrears.
I've done my sums so now I await pay day to see if I'm right.
Just one snag: the annuity has not yet been taxed so I will still owe 3 or 4 months of tax on it. HMRC said they will be doing a mid year review of my tax situation and collect any under or overpayment in my code for 2009-10
- and so it goes on.
I think by that stage as my income will have stabilised ( I have had 4 changes this last tax year ) I will pay off any outstanding bill. Or maybe as I'll be 65 in that year, with a higher personal allowance, they will owe me!
Meanwhile I wonder if Gordon Brown will give us younger pensioners any concessions to mitigate against the loss of the 10% band? If so, I start my calculations all over again! But I won't be complaining.
Many thanks to all who followed this thread and offered help.
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