Change of Tax Code mid-year

SomerBurtos

Hi All,

I have had a new tax code for the rest of this year sent to me today, it has changed to 168L. I have a company car benefit of £4790 so I understand this bit £6475-4790 = £1685 = 168L

It was 71L, the letter is dated 8/01/10 - this is because I was paying back an underpayment of £193.47 'in a previous year', so a further £967 came of my personal allowance.

This made sense too.
6475-4790-967=718 = 71L

I think I know why it changed - I got a rebate cheque of £811 last weekend, an overpayment for 2009/2010.

Two Questions I cannot fathom!
1) I assume the £811 rebate cancels out the underpayment and I get the new Tax code to show I dont owe the money?
2) Is the new code back dated to the start of the year?

If so, I think I must be overpaying again.... which brings me onto some calculations which I have guessed by looking at YTD box on my payslip,

I have earned damn near 40k so far this year.
'Gross for Tax TD' is rougly equal to 'Total Gross Pay TD figure, less personal allowance so I assume this figure must be my Taxable Income.
So in my case it would be 40k - £718 so £39,282
I pay 20% on 37,400 of that (£7480)
I pay 40% on 1,882 of that. (£753)

So my tax bill should be £8233.00?

My current payslip shows in the 'Tax Paid TD' almost exactly £9,500!! (NI is seperated out and seperate from that)

Any advice is apreciated

laurel7172

You'll get a nice little bonus in your Feb pay packet-all the tax you have overpaid so far this year.

And since the undercharge-in-previous-years repayment seems to have been calculated at 20%, but you've been paying some tax at 40%, the drinks will definitely be on you.

Mikeyorks

SomerBurtos wrote: »

Two Questions I cannot fathom!
1) I assume the £811 rebate cancels out the underpayment and I get the new Tax code to show I dont owe the money?
2) Is the new code back dated to the start of the year?

Yes, to both of those.

But ...... no, to your calculation. You're working it out as though you've already arrived at the end of the tax year? And you can't do that. The personal allowance is allocated monthly (£1685 /12) and - if you go into the 40% band - the 20% band is also allocated monthly.

If you can't rationalise it ...... post the Month number (or period ended) from that payslip and someone will do it?

SomerBurtos

Im paid monthly and its for end of Jan 2011, 31/01/2011 Mikey.

I thought the calc may be wrong. Seems mad to have overpaid by that much. Ive never really looked into tax before because its only in recent years Ive started to need to really!

Many thanks the tax code change advice both of you. It wads logical but always good to check!

Mikeyorks

Sorry .... got sidetracked by Arsenal winning with a couple of late goals! Back to important stuff.

The payslip is Month 10

Taxable pay ........................................ £40000
Personal allowance (10/12 x £718) ......... £ 598

Taxable .................... £39402

At 20% (£37400 x 10/12) £31167 @ 20% = £6233
At 40% (£39402 - £31167) £8235 @40% = £3294

Total tax due to date £9527

chrisbur

On 168L (assuming it is cumulative ) this would give

40000 less 1407 = 38593 taxable pay

20% remains unchanged at 6233
At 40% 38593 - 31167 = 7426 @ 40% = 2970.40

tax due 9203.40

9527 - 9203 = £324 tax overpaid at month 10.

Looked at another way if code changes from 71L to 168L you have an increase of 97 places which gives £970 less taxable which if all of it affects the 40% band means you pay 40% of £970 less tax in the full year, or £388 which at month 10 would be £323.33 (slight differance caused by roundings)

If you were a 20% tax payer the amount would be half that.

This assumes that the code is applied on a cumulative basis and not a month 1 basis. Your tax notice with the new code on should have this information. I have not seen a code notice lately but the old ones had a letter somewhere near the code which refered to notes at the bottom of the form or may have been on the back to tell you if it was being applied on a month 1 basis.