paying 40% on ALL my earnings, tax code D0, any help please

aah

Hi I wonder if anyone can help me please.

I was made redundant in March and my pension kicked in. This is not really good news but I had to take it.

It is worth £8500 pa, and it is taxed on an emergency basis currently. (M1)

I have been lucky enough to get another job (albeit just for 12 months) paying £43, 700 pa. After new pension contributions of £2774.95 I have a taxable income of £40,925.05.

With my previous pension income this makes a taxable income of £49425.05. I am entitled to the personal allowance of £6475 (I am 53) so I need to pay tax on £42950.05.

My calculations show that I pay income tax on the first £37000 of this at 20% = £7400; then 40% on the remaining £5950 = £2380.02, giving a total tax bill of £9780.02, which I am pleased to pay towards bailing out the bankers.

How come then, the tax office wants to tax my total earned income of £43700 at 40%, which would mean my tax bill,from earnings is £17400 and I am paying tax on my pension of £513.80, meaning a total tax bill of nearly £18k!!

Please can you help me in two ways
1. confirming my calculations
2. how the heck can I get HMRC to get it sorted! I really don't know how to approach them, and can't afford an accountant, and shouldnt need one, for an employed person.

Looking forward to hearing from you.

redpete

I think they usually use code D0 for second incomes where they assume the first uses up the tax allowance and 20% limit. Maybe the tax office thinks you still have a first income from the job you were made redundant from; if so than you should let them have a copy of your P45/P60.

Did you get a lump sum this tax year (e.g. redundancy above the tax free limit)?

I would start with your employer, ask them hy you are on the D0 code, it might be that they haven't seen your P45 so they have not passed the info on the the tax office. Failing this your new employer will be able to give you the address for the tax office that is dealing with your salary & tax affairs. Phone or write to them at that address asking why they are taxing all your income at 40% and why your pension is taxed at the emergency rate.

Rolo_Tomasi

When you started receiving your pension your tax office would have been transferred to the office that deals with the pension scheme. This then effectively became your main employment.

By starting your new job in the next tax year your employer could not do anything with a P45 - even if you gave it to them - and probably asked you to complete a P46 where you would have declared that you were also in receipt of a pension.

I think what should have happened is that you tax office be transferred to your employers office and code 647L be operated on that income. Your pension the becomes an additional income and code d0 be operated on that. However the tax office appear to have got muddled and issued the codes the wrong way round.

You should have been sent a PAYE coding notice which states what your tax code is and has contact details for your tax office. Give them a call and explain that you want your personal allowance to be set against your employed income and let them know what this income is likely to be. They should then operate d0 on your pension income.

Unfortunately there is nothing your employer can do as they have to operate the code given to the by the tax office.

dori2o

Very easy problem to resolve.

First of all decide where you want your tax free allowance, do you want this off your pension, or on your salary?

Then phone the tax office and tell them that you are being overcharged, and one of the very helpful advisors will update the tax code for you.

aah

Yes, tax office was very helpful and contact details were on coding notices.

So I phoned them this afternoon, it took a bit of work to persuade them that I should not pay 40% tax on all of my pension, but only on part of it, but eventually this was sorted and my income for tax purposes is being added together.

So I have to have the allowance against my earned income (I actually wanted it against the pension because my job is only temporary) and I will pay 20% on my taxable income once the allowance is deducted - and 20% on the remainder of my income (pension) that is within £37400 and 40% on the portion above it.

So it seems to be fitting in well with my own calculations. The only problem is time - so the nice tax office man took details from me rather than send P46 - and hopefully new code will be sorted before pay closedown next month.

Thanks kind friends for all your posts x