confused about tax code change

System

You can call the Inland Revenue and ask them to recover the money over 2 years. They regularly do that.

Re your P60's and the address being correct on them - It's a common misconception but the Revenue do not issue P60's they are issued by your employer who also sends a copy called a P14 to the Revenue at the end of the tax year and the Revenue is really only interested in the monetary details on it and don't have the time to check that any address on the P14 matches what they have on their computer system. The Revenue know absolutely nothing about either your correct address or your income unless or until either you or your employer tell them.

ab7167

All sorted now, someone on the phone was very patient and went through the numbers with me.

I owe 22% of £1392 = £306. This will be collected at £26.50 per month for 12 months. So in April, my tax code will stay at 350L until October, and my November paycheck next year will revert back to 489L (or whatever it will be for the next tax year).

So I won't pay it back all this tax year, it is collected over 2 tax years, but only 1 actual year (12 months)

I can cope with this, as long as the payments will remain the same. They put me on a month 1 basis, otherwise, they would have automatically taken the last 7 months from last April from the same paycheck, leaving me £200 odd short!

Thanks for all your comments.

ab7167

just another query - if I had the savings, could I just send them a cheque? Or do they not like this?
Alex

ctm_2

ab7167 wrote:

just another query - if I had the savings, could I just send them a cheque? Or do they not like this?
Alex

Yes. You could send them a cheque, but that might end up confusing things.

From what you have said you have not had a calculation issued to you showing that there is underpaid tax for a past tax year.

What you have is an underpayment has arisen during the year due to the inclusion of company benefits in your code.

During the current tax year (6 April 2005 to 5 April 2006) you will have recieved company benefits of £1392. However, as this was not included in your code at the beginning of the year, the tax due on this amount has not been collected in previous months.

Your code now will include a deduction for the full amount of £1392, but is on a Month 1 basis (thats what the M1 stands for). This means that the tax due on 1/12th of £1329 will be collected each month from now till the end of the year. Obviously this will not collect the full amount due. On your notice of coding there will also be an item called a Potential Underpayment (or something similar) which will be the amount that should have already been deducted during the tax year. This amount will be included as a deduction in your tax code next year, as well as a deduction for the company benefits you will receive in that year.

So, assuming the code issued will be operated for 6 months, the potential underpayment will be £153. This will go into next years code, and will remain there for the whole year. This £153 will then be collected over the duration of the whole tax year.

Hope that makes sense!

grumpyoldgit_2

ab7167 wrote:

just another query - if I had the savings, could I just send them a cheque? Or do they not like this?
Alex

Glad you got there :j - HMRC are willing to explain things and often will negotiate if they can.

Yes you could pay off what you owe - but bear in mind you are getting an interest free loan by repaying in instalments - better to accrue a little interest on your savings.

GoG

sarahlouise210

ab7167 wrote:

All sorted now, someone on the phone was very patient and went through the numbers with me.

I owe 22% of £1392 = £306. This will be collected at £26.50 per month for 12 months. So in April, my tax code will stay at 350L until October, and my November paycheck next year will revert back to 489L (or whatever it will be for the next tax year).

So I won't pay it back all this tax year, it is collected over 2 tax years, but only 1 actual year (12 months)

You may have got the wrong end of the stick here. As I said before and also in ctm's post .. the underpayment will be collected from November this year and then every month next year. HMRC do not work in the way you have stated.If they were to revert your tax code in November next year you would not pay the whole underpayment - worse still, if they changed your code to what you have said you would autonatically receive a refund through your wages of all the tax you had paid for the underpayment. Prepare yourself that the underpayment will be with you until April 2007! From April you will be paying less than you are now though as there are 12 months to spread it over

ab7167

Really? Ach damm!
Never mind, as long as I know in advance. Have been going through numbers, and from what I undertand the £26.50 I lost this month is the most per month I will ever have to pay - I may pay less after April, but I will still be paying something.
Anyway, as I get my pay rises at Christmas I have decided to look at it the following way.
Assume I will get paid £1570 pcm (this months pay including extra deductions). Then I get a pay rise at Christmas, one in April when the payments go down, one next Christmas and another one the following April when my code finally goes back to normal.

Wahey! 4 pay rises instead of 2. Have managed to balance budget for this months pay amount, so looks like I'm quids in (not really, but trying to make it feel that way - assume I have the least amount possible, and then pay off more debt when the extra arrives)

Just a small note - this is an underpayment for tax year 2004-05, not the current year, from my P11D from that tax year. I no longer receive benefits in kind due to a job change, so there will be no more liabilities from that to come in future.

Will they send me an replacement coding notice? Last one went astray due to an old address on their computer.

And being in debt, I have no savings - was a purely theoretical question :-) But thanks for the answer, anyway!

regards,
Alex