Can anyone explain this Tax Code?

cadenza82

For the tax year 2005/6 I owed just £258.28 in Income Tax. I was advised that this would be included in the PAYE code for 2007/8. When notification of this came, my tax code had been reduced from 466L to 263L. This seems a very large reduction just to collect £258

Can anyone explain - I don't really understand these tax things!

David

sammy115

It does sound wrong, I would ring the inland revenue helpline up - they will be able to access your records and tell you how they came up with that figure. Do you have any other benefits from your work like car or health insurance

cadenza82

sammy115 wrote: »

It does sound wrong, I would ring the inland revenue helpline up - they will be able to access your records and tell you how they came up with that figure. Do you have any other benefits from your work like car or health insurance

No, there are no other benefits. I'm employed for 12 hours a week, and the rest of the time I'm self-employed.

David

dunstonh

Are they deducting your self employed earnings from it?

oldwiring

Are all the adjustments actually for 05/6 underpayment? Are they making an estimate for 06/7 or future earnings to prevent it happening again?

cadenza82

They are deducting 10 times what is owed in tax from 05/06 from the code.

David

withabix

dcmbarton wrote: »

They are deducting 10 times what is owed in tax from 05/06 from the code.

David

No, they are deucting roughly twice what is owed, assuming basic rate taxpayer:

466L - 263L equates to approx 4660 - 2630 = 2030

£2030 * 22% = £446.60

I would say they've assumed the same underpayment of tax for the current tax year.

However, as you are also self-employed, this figure will also probably relate to your tax return figures for 2005/6.

duftmeister78

what is the full breakdown of the tax code? i.e., whatis in the allowances column and what is in the expenses column?

Gorgeous_George

I tried to post an answer to this earlier but the forum wasn't working.

I almost agree with withabix except I think it's only the 10p band that is affected i.e., £203



GG

cadenza82

Their explanatory notes read:

"You owe £258.28 tax from a previous tax year - you may remember us telling you about this before. By reducing you tax free amount by £2582 we expect you to pay tax at 10% on an extra £2582 this year, which should collect the amount you owe (£2582 at 10% is £258.28)"

The actual figures read:

Your personal allowance £5225
Interest without tax taken off -£11
Reduction to collect unpaid tax £258.28
a tax free amount of £2632

They may be quite right in doing this, to me it just doesn't make sense. I'd personally have preferred to have the option of paying the amount due up front in the first place - I can't get my head around this!

David

ctm_2

dcmbarton wrote: »

Their explanatory notes read:

"You owe £258.28 tax from a previous tax year - you may remember us telling you about this before. By reducing you tax free amount by £2582 we expect you to pay tax at 10% on an extra £2582 this year, which should collect the amount you owe (£2582 at 10% is £258.28)"

The actual figures read:

Your personal allowance £5225
Interest without tax taken off -£11
Reduction to collect unpaid tax £258.28
a tax free amount of £2632

HMRC expect yo to not earn more than about 7.5k from the source of income that the code is operated against, so the deduction to collect the tax due is correctly calculated at 10%, as you won't go into the 22% band at that source of income.

You say you are self employed, so I would expect that underpayment is the result of the tax return you completed for 2005-06.

You say:

dcmbarton wrote: »

They may be quite right in doing this, to me it just doesn't make sense. I'd personally have preferred to have the option of paying the amount due up front in the first place - I can't get my head around this!

You probably did have this option. When you completed your tax return you should have ticked box 23.1 "Tick box 23.1 if you do not want any tax you owe for 2005-06 collected through your tax code", and then they wouldn't have put it in your code, and would have sent you a bill.