Am I due a tax rebate? Help/advice please!

Lubielu

Hi there

Can anyone offer any advice for the following two queries please? I'm trying to work out in my mind what is happening with my tax codes. I've tried to make this a full statement of the facts, but if I haven't put in all relevant info, apologies and please let me know!

1. Incorrect tax code applied by employer?

I am in the process of changing jobs and noticed on my P45 that the tax code used by my old employer is lower than what is stated on my coding notice. In fact it's the same code as the 2009/10 tax year. Details below.

Code stated on P45 dated 31 March 2011 = 584L.

Code stated on my coding notice for 2010-11 = 605L.

Code stated on my coding notice for 2009-10 = 584L.

What is going on here? Is this simply an error by my employer?

I am not sure what other information would be helpful here? If it's relevant at all, I was on maternity leave from June 2009-May 2010, but was rebated income tax month-by-month through my payslip, so I'd assumed this was tax neutral (perhaps wrongly?).

2. Why has the taxman deducted so much for "savings income"?

Looking back over the past three years' coding notices, the tax office has reduced my tax code by about £400 to 600 each year for "savings income". I don't have any savings or investments that would generate this level of taxable income, only my private pension which is worth about £65k on the latest valuation.

Please can anyone confirm whether in fact this is likely to be leading to this tax liability? Is so then it makes a laughing stock of doing "salary sacrifice" with pension contributions to make them more tax efficient.

In case it's relevant, I only have one taxable benefit which is private health insurance - taxable benefit of £22 per month. No company car, dental, etc. I am married and in my mid-30s with one child. I am a higher rate tax payer.

Any help very much appreciated.

Thanks!

System

Savings interest is taxed at source but only at 20%

Since you are a higher rate tax payer, the tax on your savings interest needs to be paid at 40%.

HMRC adjust your tax code to recover the underpaid tax on that savings interest and they base their calculations on what has happened in previous tax years.

The 'standard' tax codes for recent tax years were/are:
2008-09 = 603L
2009-10 = 647L
2010-11 = 647L
2011-12 = 747L

So if your P2 Coding Notices show anything less than the above, then you should check if the adjustment was correct.

Do you complete a Self Assessment Tax Return where you have specified the interest you have received on your savings (banks/building society interest) (Not including ISAs) ?

If you do not think that the Tax Code adjustment is correct based on the amount of interest you have received, then you should phone HMRC to let them know how much interest you have received.

If you wish, you can get help with checking the calcs if you post some more info about your income, tax paid, tax code - from P60 and also savings interest / tax paid from tax certificates issued by your bank/building society. Also, include details from the P2 Coding Notice(s) re. how HMRC have calculated the adjustment for savings interest.

Lubielu

Thanks, OK so I need to get tax certificates from my savings accounts to show how much interest and tax has been paid. It sounds like I am effectively "topping up" the tax from 20 to 40% as only 20% is deducted automatically - makes sense. But it still seems strange to be deducted this much, as unfortunately I don't have a large pot of savings. Any views on the pensions savings and whether those could have been included in the calculation as "savings interest"? Many thanks.

System

Lubielu wrote: »

Thanks, OK so I need to get tax certificates from my savings accounts to show how much interest and tax has been paid. It sounds like I am effectively "topping up" the tax from 20 to 40% as only 20% is deducted automatically - makes sense. But it still seems strange to be deducted this much, as unfortunately I don't have a large pot of savings. Any views on the pensions savings and whether those could have been included in the calculation as "savings interest"? Many thanks.

If you have a normal type of pension pot then that would not be taxable. In fact if you pay pension contributions from your salary, then the pension payments are deducted before tax and you should get extra relief because you pay tax at 40% - there should be an entry for these pension payments on your P2 Coding Notice to show that your tax free allowance has been improved to take account of any pension payments (for the 40% tax)
However, if your pension scheme is not a recognised authorised scheme by HMRC, then it may not qualify for tax excemption - but I doubt that this applies, so no, your pension savings pot should not normally be taxed.

birkee

Any transitary ammounts passed through your bank?

I had the situation where I deposited a large sum of money (house purchase quantity) in one month accounts, that paid large interest rates. (for about three months.) This I declared to the HMRC and was taxed on the interest.
However, when we bought the house, HMRC continued to tax me on interest I was no longer receiving. Had to contact them and get it stopped myself.

It's a bug**r when they tax you on money they think you have, as opposed to what you DO have.

Lubielu

Duplicate post sorry!

Lubielu

birkee wrote: »

Any transitary ammounts passed through your bank?

I had the situation where I deposited a large sum of money (house purchase quantity) in one month accounts, that paid large interest rates. (for about three months.) This I declared to the HMRC and was taxed on the interest.
However, when we bought the house, HMRC continued to tax me on interest I was no longer receiving. Had to contact them and get it stopped myself.

It's a bug**r when they tax you on money they think you have, as opposed to what you DO have.

That's possible - I had about £80k house deposit in one of my accounts for a few months in 2007, in between selling one property and buying another. All subsequent tax returns have included this savings interest deduction so there could be a link there. I will check it out - thanks!