Tax code change

dori2o

onlyroz wrote: »

How can they know that I have underpaid? So yes, they will see that my health insurance was larger in 2011-12 than in 2010-11 - but what can they infer from this other than that the premium has gone up?

because the amount included in your tax code is less than the actual benefit being received, so you are not paying the tax due on the entire benefit, only the bit included in your tax code.

When HMRC get your P11d at the end of the year it will show the actual value of the benefit your employer has provided to you. They will do an assessment, and in all likelyhood you will be underpaid.

onlyroz

dori2o wrote: »

When HMRC get your P11d at the end of the year it will show the actual value of the benefit your employer has provided to you. They will do an assessment, and in all likelyhood you will be underpaid.

Surely my 2011-12 P11d will show the benefit for the 2011-12 year? And this will be used to calculate the tax code for the 2012-2012 tax year? So could you explain how they will account for the unpaid part of the 2010-2011 tax year?

Please excuse me if I'm being dim, but my understanding is as follows:

The P11D for 2010-2011 shows a part-year payment of £322 for private medical insurance (from Jan-March 2011) - this information is used to calculate my tax code for year 2011-2012.

The P11D for the 2011-2012 year will show a full year payment of around £1800 - this information is used to calculate my tax code for year 2012-2013.

Where, exactly will the "underpayment" be accounted for? The only record of this is from the P11D provided by my previous employer - which showed around £1400 in health cover. My current employer has no knowledge of this and so will not include it in their P11D forms.

dori2o

onlyroz wrote: »

Surely my 2011-12 P11d will show the benefit for the 2011-12 year? And this will be used to calculate the tax code for the 2012-2012 tax year? So could you explain how they will account for the unpaid part of the 2010-2011 tax year?

Please excuse me if I'm being dim, but my understanding is as follows:

The P11D for 2010-2011 shows a part-year payment of £322 for private medical insurance (from Jan-March 2011) - this information is used to calculate my tax code for year 2011-2012.

The P11D for the 2011-2012 year will show a full year payment of around £1800 - this information is used to calculate my tax code for year 2012-2013.

Where, exactly will the "underpayment" be accounted for? The only record of this is from the P11D provided by my previous employer - which showed around £1400 in health cover. My current employer has no knowledge of this and so will not include it in their P11D forms.

the P11d shows the value of the benefit received in 2011/12, therefore when they do an assessment for 2011/2012 they will include the full amount in that assessment. You will only have paid tax on part of that benefit, and therefore will owe the tax on the other part.

Yes the information is used to update a tax code where necessary, but the benefit is still taxable in full in the year it is received.

BoGoF

dori2o has summed it up nicely there, not sure what else there is to add. You pay tax on the benefit in the year it was received so if too little was coded then an underpayment will arise. The amount in your code is a provisional amount until the actual benefit is known.

System

onlyroz wrote: »

Surely my 2011-12 P11d will show the benefit for the 2011-12 year? And this will be used to calculate the tax code for the 2012-2012 tax year? So could you explain how they will account for the unpaid part of the 2010-2011 tax year?

Please excuse me if I'm being dim, but my understanding is as follows:

The P11D for 2010-2011 shows a part-year payment of £322 for private medical insurance (from Jan-March 2011) - this information is used to calculate my tax code for year 2011-2012.

The P11D for the 2011-2012 year will show a full year payment of around £1800 - this information is used to calculate my tax code for year 2012-2013.

Where, exactly will the "underpayment" be accounted for? The only record of this is from the P11D provided by my previous employer - which showed around £1400 in health cover. My current employer has no knowledge of this and so will not include it in their P11D forms.

There is another part to the equation....
When HMRC use the P11D from 2010-11 that will tell them the full amount of the benefit that your received in that tax year (In this case a part year) They use that benefit amount to calculate the total amount of tax that you should have paid in the 2010-11 tax year, if the calculation shows you have not paid enough tax, HMRC adjust your tax code for 2012-13 to reclaim that underpaid tax (i.e. 2 years later).
Also, HMRC will set your tax code for 2011-12 based on the P11D from 2010-11 - if you know the amount of the benefits you will receive are going to be significantly different from those in 2010-11, then you can phone HMRC to inform them that your tax code for 2011-12 needs to be adjusted to include the amount of the benefit you know will be paid in 2011-12, thus the amount of tax you pay will be close to the amount that was due.
If you do not inform HMRC, they will catch up the following year and the underpaid tax will be reclaimed via another tax code adjustment two years hence.

This 2 year delay is the normal method that HMRC adopt to reclaim underpaid tax via the PAYE tax code system.

onlyroz

Well for the sake of £300 which I will pay back in two years time, I'm just going to leave it to sort itself out. If it was thousands then I might think differently.

As an aside, how would things change if I became a higher rate tax payer within the next two years? (At the moment I am a few £k under the threshold). Would this affect the amount I would have underpaid?