Tax Coding Notice/P11D Query

jimmo

OK let's try this.
Under process 1 (see my post at #9) we are assuming that HMRC's review of your liability for 2010/11 shows that you have underpaid tax by £6.00. That is such a small amount that it would cost HMRC more than that to collect, so they don't bother. They do not formally determine the underpayment. They do not formally notify you of the amount of the underpayment and they do not try to collect the underpayment from you.
Under process 2 HMRC think it is reasonable to assume that during 2011/12 you will probably make about £30 on mileage allowances and, whilst they will not chase you for the 2010/11 underpayment, they want to try to ensure that you pay the correct amount of tax for 2011/12.
They do that by adjusting your code.
For 2011/12 we are all entitled to a Personal Allowance of £7475 and people with straightforward tax affairs have the whole of their Personal Allowance set against their wages by way of a code number of 747L.
Your tax affairs are not quite so straightforward because you effectively have 2 separate sources of taxable income, your wages that your employer operates PAYE on and your mileage allowances that your employer does not operate PAYE on.
HMRC then allocate £30 of your Personal Allowance against what they anticipate you will receive in taxable mileage allowances.
You are still entitled to the Personal Allowance of £7475, just like everyone else but, because £30 has been allocated to your mileage allowances there is only £7445 available to set against your wages.
On that basis whilst most of us are on code 747L, you should be on code 744L
I hope that makes sense.