Underpaid tax

AirlieBird

katp1984 wrote: »

Recently, I called HMRC up to update them that I am paying for various subscriptions to professional bodies and insurance which are tax deductible. Subsequently my tax code changed from 747L to 811L (on my payslip).

My pay slip for last month shows that I received a refund for £1216 (PAYE - £1216R). My gross pay was £711 last month (excluding the refund). I was really confused when I saw this:(

My question is - is it possible to work out how much I have underpaid by? Secondly do I inform HMRC? I was going to save the money in an instant access savings account and when they inform me that I have underpaid to pay them the money.

Thirdly will I be liable for a fine? as I don't really think this is my fault as I am a PAYE employee.

Somebody is getting confused here. Whether it's you or HMRC I'm not sure. Your tax code changed because of professional fees and subscriptions. If you are paying these yourself then you are entitled to tax relief on them - not to pay extra tax on them - that is why your tax code changed. (More info here). Changing to 811L from 747L means you are now receiving tax relief on an extra £640 of income - presumably the total annual cost of your professional fees and subscriptions.

You got a refund in your last pay due to a number of factors - change in your tax code giving you an increase in your tax free pay, changing from a non-cumulative to cumulative tax code and, I think, refund of some higher rate tax.

For simplicity, I'm going to assume that you have been paid the same as month 8 in each month of your new job. This would mean that after pay period 4 - the last pay in your old job - you would have taxable earnings to date of £14,394. This would put you slightly into the higher rate tax band at that point in the year so you would have paid some tax at 40%.

You were on a non-cumulative code for the first few months of your new job. This means that in each month you got paid your were taxed without reference to any previous pay or tax you had paid. So as your taxable pay to date now is below the higher rate threshold you are due that bit of higher rate tax you appear to have paid back. That couldn't happen when you were on a non-cumulative tax code. You were put on a non-cumulative code because you did not give your new employer your P45 before your first pay day.

The tax deducted to date on your period 8 payslip is too much for your taxable pay to date. It's not clear why this is. Was there a period you didn't work between jobs? This would suggest you paid more at the higher rate in your old job then if you worked through with consistent pay in your new job. By moving back on to a cumulative tax code this corrected itself so you had paid the correct tax to date.

Finally, because your tax code increased from 747L to 811L you receive more pay tax free. You will be due back a portion of this for each month of the tax year so far.

If your tax code has changed you should have received a P2 notice of coding to explain why your tax code is non-standard. As long as you ensure your tax code is correct you should pay the right amount of tax.