Tax Bill

newbie8

Hi All,

I was wondering which option is actually better.

I have a tax liability. Rather than pay in one lump sum. I have asked for it to be deducted from my monthly salary, which has resulted a reduction to my Tax Code. (about 2500).

Is it better in the run to pay off what is outstanding in full, or continue to let them deduct from my tax code?

I was wondering this as I am quite close to the higher tax band and because of the reduction in the code, will I end up paying more tax if I go over the basic tax rate?

Thank you all

dampsquib

IMO you are best sticking with the coding adjustment. Think of it as an interest free loan that you are paying back in monthly instalments. Also, should the adjustment fail to collect the full amount, if the under-collection is small, you might be lucky and get it written off at the end of the year.
If the adjustment causes too much to be collected, you would eventually get that back. Perhaps unlikely, but if your salary improves and you will be an ongoing higher rate taxpayer, you could ask HMRC mid-year to recalculate the size of adjustment that is needed.

newbie8

I am 99.99% sure that I will reach the higher tax band as I took a 12 month seconded position beginning of Nov last year-and overtime is pretty much every month too. So not been in this position before. Is there a site to work out if I would be better or worse off by having the payments deducted monthly.

I have the tax liability because 1-Tax was incorrect from last year and 2-Student loans did not collect the correct amount so they are also taking the extra. So even with the increase of pay my net is no better

Mikeyorks

newbie8 wrote: »

Is there a site to work out if I would be better or worse off by having the payments deducted monthly.

Not possible as there's nothing to compare against. You either pay it as a lump sum or you pay it in (interest free) instalments over 12 months. If the deduction from Coding causes you to pay slightly over the odds because you go into the 40% band - it will be refunded idc. Stick with paying it through PAYE and keep the savings.

I have the tax liability because 1-Tax was incorrect from last year and 2-Student loans did not collect the correct amount so they are also taking the extra.

I understand the tax underpayment - not the SLC. There's no way to recover underpaid Student Loan via Coding - unless you did an SA Return for that year.

newbie8

Mikeyorks wrote: »

I understand the tax underpayment - not the SLC. There's no way to recover underpaid Student Loan via Coding - unless you did an SA Return for that year.

Yes, I did a SA Return last year, and they said that the incorrect amount was deduced I guess I borrowed it so I have to return it. So glad I got a second job as soon as I finished university and paid off most off it and didnt just spend it all SO many things I wanted to buy.

Mikeyorks

Advice remains - pay it in interest free monthly instalments over next year. If you have the lump sum - keep it as a contingency and also to top up your monthly pay if the extra deductions bite more than expected.

On the SLC underpayment - normally occurs from having 2 x PAYE jobs at the same time. You legitimately get the £15k annual threshold on each (and 9% SLC over that) ....... but only the single £15k when it gets merged via SA.