confused about tax code change

ab7167

Hi,
been reading the getting out of debt threads, but I think this is one for you guys.
I had nicely balanced my budget and am well on my way out of £6k debt.
However - I logged onto internet banking this morning (payday) to find myself short on pay. Our accounts lady said the Inland Revenue had changed my tax code. I just would like some advice about how things are worked out.
They have changed it from 489L to 350L M1. I think this is because in tax year 2004/05 my employer submitted a form P11D that said I received £1392 in benefits in kind (which is correct, not disputing this)
How do I work out whats going on?
Salary is £25800 p.a.
Just a bit confused about how much I owe and how they are working it out...
Thanks in advance
Alex

CIS

The tax code has been ammended by £1300 to compensate for the underpayment (from £4890 to £3500).

Your tax code stay at 350L until you have paid the extra £1300 in tax, then it will be returned to your normal code.

ab7167

Do I really owe then £1300? Or just the tax on £1300
*confused*
and how do I work out the tax on £1300 so I know when my tax code will return to normal.
Sorry for all the questions, but what does M1 mean as well?
A

ab7167

because if I do owe them £1300, its going to take a few years at £26 per month? and do I pay interest?

kingarhu

Don't panic, it's only the tax on the £1300 that you owe. The standard allowance is £4895, then you have to pay tax on anything you earn above that. The change just means that now your allowance is £3505 and you'll be taxed on anything over that. The M1 bit just means that the tax is calculated on each month individually rather than on your earnings in the year to date. I hope that helps to make things a bit clearer.

ab7167

umm, a bit clearer.
so I owe them 22% of £1300 = £286.
at £26/month = 11 months - so around this time next year my code will go back to normal. do I have to ask for this, or will it happen automatically?
sorry, sorry - I am totally numerate in my day job, just can't get the hang of this money stuff!
Alex

jobbingmusician

I'm pretty confident that (assuming the change of code is for the reasons outlined above) your tax code will go back to normal in the new tax year. It won't be deducted at £26 a month, it will sort itself out (and as you've noticed, you'll lose more than that per month) over the remainder of this tax year.

They should have written and told you about this change of tax code, though....

ab7167

The change in code is purely to do with benefits in kind that I received for that tax year only - for this tax year I won't receive any (as I am now office based instead of site based).

So I have to pay the full £286 before April? I really can't afford that - do you think that they will accept a reduced tax code over 2 years to pay it back? I've only just got back on my feet and paying debt off - to be on a steadily reducing pay cheque for the next 5 months will seriously impact this.

Ah, they did write - but for the last 8 years they have been sending everything to an address in Norwich where I only lived for 6 weeks one summer holiday! Me being a numpty didn't realise that I was supposed to get a code every year... And also on my P60's the address was always right, but apparently they don't pick up on this? Although how they got the Norwich address is beyond me!

So I have corrected that also...

All this has knocked me a bit for six - is there any way of evening it out so I lose the same amount per month? Also am changing jobs at the end of December (but I guess this will have a negligable impact, apart from going from monthly pay to 4-weekly - another hurdle to overcome!)

thankyou all for your help, the inland revenue people don't want to talk clearly and in words of one syllable. And I have a maths based degree and still don't get it!
Alex

grumpyoldgit_2

Visit your local Tax Enquiry Centre and talk face to face with someone - I have always found them helpful and considerate.
Address in local 'phone book

Good Luck
GoG

Marsh_Samphire

When they wrote to me about my tax underpayment they said they'd take it back over one year but I rang them and they agreed to 2 years straight away.

sarahlouise210

the fact that your tax code is a month one code means that you will be paying the underpayment over 2 years .. the reason for this is : they have reduced your tax code to account for the underpaid tax,however they have not done so until this month.In an ideal world you would have paid the underpaid tax in 12 instalments as from April, however you will only pay 1/12 of the underpayment each month from this month to April.The remainder of the underpayment is called a potential underpayment and this will be collected as from April. In April the remainder of the underpayment will again be split into 12(thereby reducing the monthly payments) and you will pay it off for the remainder of 2006-7 .When HMRC sent your employer the new tax code they will have automatically sent you a copy as well - phone the tax office and check that they have your correct address.