Backdated tax code change

MGCP

I wrote to HMRC to tell them about personal pension contributions I have started making, so that I could reclaim some tax (as a higher rate tax payer).

I have now been given a new code which, applied across a year should allow me to recover £900 (20% of £4500).

They say that this code has been "backdated to April 2010", but I don't quite understand how this works in practice.

Presumably with the new tax code, next month's salary will just have £900/12 months = £75 added to it. Over the 6 months pay cheques I have left for this tax year that would only amount to £450.

How would the other £450 applicable to the previous 6 months contributions be paid? Does this come in the form of a separate payment, or will it somehow be factored in to the remaining 6 months tax year (ie in effect 6x£150=£900 via PAYE)?

If anyone has any ideas I'd be very grateful!

chrisbur

Your new code will be applied on a cumulative basis. That means each month the tax you owe up to that point in the year is calculated and the tax you have paid so far is taken away from that the difference is what you pay that month. The first payday that your new code is applied to will reduce the tax you pay that month by whatever is owed to you for that month and every month back to the start of the tax year. After that you will just get one month reduction at a time.

Mikeyorks

MGCP wrote: »

Presumably with the new tax code, next month's salary will just have £900/12 months = £75 added to it.

If your Code number has been increased by 90 points (ie £900) then - to take your example it will be £900 / 12 x 7 = £525 at the Oct pay point. And £75pm extra for the remaining 5 months.

MGCP

Thank you both for the explanation.