How does a "K" notice of coding work.

John_Pierpoint

I ask this question in on behalf of an elderly relative.
The records are incomplete but it would appear that this elderly pensioner some time transferred a chunk of "nest egg" to what used to be called colloquially National Savings "Pensioner Bonds" - I think because only pensioners were allowed to buy them.

They paid GROSS interest.

Somehow elderly relative "forgot" to mention this new investment to HMRC and and for tax year 07/08 ended up with a tax code K632.
Presumably as an attempt by HMRC reclaim unpaid tax.

In theory how much back tax was HMRC trying to collect with a tax code of K632 from a 75+ year old pensioner back in year 07/08?

A worked example would be a great help for me trying to explain this mess.

BoGoF

Virtually impossible to advise without more info, i.e. state pension, whether or not there was restricted age allowance.

Ask HMRC for a breakdown of the code

John_Pierpoint

I did sort of try to ask that and got a somewhat RTFM response.
I don't think I want to rattle too many bars on too many cages: Something about it not being visible on the computer screen and the requirement to get the file back from archive.
What is a "restricted age allowance"?
What I am really asking is: If I was the pensioner's pension provider and suddenly got a code change to K632 what would I be expected to do?

chrisbur

A K tax code works in reverse to the usual tax code. Instead of getting an allowance before tax is due the tax code is added to any income and tax is calculated on this total. So if say the pension was for £10000 then with a code of K632 they would pay tax on £16320.

John_Pierpoint

I think there must be some clause that says a "K" code can only result in a top rate of tax of 50% as the old relative has a company pension of only a little over 1,000 gross and received exactly half of that pension after tax?

(How an ancient pensioner is expected to understand what is happening escapes me).

chrisbur

As you say if a K code would result in over 50% being taken as tax then it is limited to 50%.

John_Pierpoint

Statement date September 2006.
Balancing payment due for year 05/06: 1,230
Included in PAYE code for year 07/08: 1,230

31jan07 1st payment 06/07 on account cancelled
31jul07 2nd payment 06/07 on account cancelled.

BUT with only a PAYE income of a bit over 1,000 and only 50% of that taxable, by the end of year 07/08 the elderly pensioner will be deeper in debt.

It is like trying to sort out payments and get out of debt, on a credit card statement.

I think the committee of MP's got it about right:

http://www.channel4.com/news/articles/business_money/oaps%20receive%20raw%20deal%20from%20hmrc/3561067

OAPs 'receive raw deal from HMRC'

This link seems to be a useful resource for the basics in tax values. http://www.uktaxcalculators.co.uk/

zygurat789

Have a look on the self assessment statement for the balance due, either payable or receiveable. HMRC do not automatically repay any monies due to you, you have to ask.