PAYE coding notice. Can someone explain?

downandout!

Folks,

In the post today I received my PAYE coding notice for 05/06.

I'm not too clued up and the leaflet it says should have been enclosed, isn't.
I intend calling the IR tomz, but thought I could get some help from soemone on here.

anyway, details are as follows:-
Tax allowances
personal allowance £4895 (total allowance is same)
amounts taken away from my total allowance
tax underpaid (£1128.58) £5129 (total deductions 5129)

my excess deductions for the year are £234, making my tax code K22.


My annual earnings are £11551 and for the past year my tax code has been 118L. This was due to an error the previous year, and I was told I had to pay back the shortfall. I have been paying approx £170 a month this entire tax year and was under the impression I would be up to date by April.

Advice welcomed.

Thanks

downandout!

isasmurf

I think this is the leaflet you should have got. It explains how your taxcode is worked out. http://www.ir.gov.uk/leaflets/p3.htm

If you think you will have paid off your underpayment then you should contact the revenue as planned.

downandout!

Thx isasmurf,

Can you explain what this means though? Are they saying they will take an extra £234 per month in tax from my wages??? :eek:

isasmurf

No. You will be taxed on your annual income plus your excess deductions.

Your salary 11551
Excess Ded 234

You will be taxed as if you had an income of £11785

10% on £2090 = £209
22% on 9695 = £2132.90
Total tax payable £2341.90

downandout!

I really don't understand why I have underpaid. Shouldn't they have sorted this out last year?

I will look out some stuff in the morning, give them a ring a see how things stand after that.

System

The underpayment is probably for an earlier year like 2003/2004 and you should have a copy of the assessment for that year. Call your tax office and they will be able to explain where it came from or better still write to them and ask for a written explanation so that you have a record.

downandout!

Thx for replies,

I spoke to the IR and it is an underpayment for an earlier year. Back in May last year I phoned the IR because I noticed my tax contribution had jumped up considerably. I noticed my code was 118L and was told this was because I had an underpayment. Now the same thing is happening this year. I was counting on the extra I would have now I would pay less tax!

Basically I worked for an agency from Sept 01 - Feb 03. I can remember getting a letter from the IR detailing my tax code and how it was calculated and what it meant. The code was 1550L (1500 odd with a letter. I'm guessing). Basically it said I would have to earn over 15 odd thousand per year before paying tax. I was only on 10k a year so paid nothing. The IR have no record of why my tax code changed but I am 100% certain they did. How else would I be working to this tax code?

Anyway, I can't afford to live on the amount I would have left after tax is deducted each month as I have a mortgage (and all associated costs) and 2 kids under 3. My partner doesn't work at the moment.

How can I sort this out? Can they take a smaller amount each month and recover the underpayment over 2 or even 3 years? Should I try to get to the bottom of why I was on the tax code and see if they will right the underpayment off?

Advice needed and will be greatly appreciated

Thanks

downandout!

lipidicman

downandout! wrote:

The code was 1550L (1500 odd with a letter. I'm guessing). Basically it said I would have to earn over 15 odd thousand per year before paying tax. I was only on 10k a year so paid nothing.

Did you not think this was odd? At the very least you should have put the extra money away for when they asked for it back.

downandout!

What can I say lipidicman, I am very naive.

I'm not too clued up on tax and just assumed because I earned so little and had a partner who didn't work and a new born child It was right. I didn't realise the IR were so prone to making errors.

If I thought there was any sort of error why on earth would I "put the extra money away for when they asked for it back"? I would have just phoned them and got it corrected.

Rafter

Sounds like you might be entitled to some tax credits if that is your total household income and you have a young child?

I don't think you will have much luck getting the IR to waive the underpaid tax. They are already spreading the recovery over 2 years rather than asking for a lump sum.

A code ending in L is an allowance and is rounded down by a factor of 10. Therefore if you have a code of 100L, £1000 will be deducted from your taxable salary and you will pay tax on the rest as outlined by isasmurf above.

A code ending in K works the other way. It means that cumulative underpayments of tax, benefits like healthcare or company car exceeds your personal allowance and any additional allowances or credits you are entitiled to.

1550L is an extraordinary code and I'm amazed it has taken a couple of years to sort out. Presumably you remember at the time paying no tax at all though?

R.

downandout!

I receive tax credits now but didn't then.

I do recall not paying tax and have not disputed this. If I have to pay it then that is fine but would there be any chance of me spreading it over a longer time frame?

My current wage is only £670 after tax which doesn't go a long way with 2 young kids and the amount of tax which I will be paying this year will be even more than now. For the last year I have struggled along, increasing my debt to be honest, and was hoping the little extra I would get from paying less tax would help resolve this. However, my position is now going to be worse.

Surely when they reviewed my contributions last year this would have been apparent then. Why has it taken so long for this to be pointed out to me?