Help with tax code issue please!

jintyb

Today I got a notice of coding from HMRC stating my tax code was going to be BR for 13/14. I phoned them up and after discussion they said they were wrong and re-calculated my code to be 524L.
I am on long term sick as I am recovering from cancer treatment. I have recently started getting ESA and get £71.70 from 1/6/13 to 29/8/13, after that I get 105.60 pwk.
I'm not sure how to calculate my take home pay. My gross is £1195 per month plus ESA as stated. The HMRC woman said my monthly tax would be @£200 for the rest of the tax year. Is that about right?
They are putting me on a wk one month one basis, whatever that means.

I really hope someone can help me with this, sorry if this os not the right place to post this. Thanks in advance. x

agrinnall

It is the right place to post it.

The ESA totals around £4000 for the current year. What I expect HMRC have done is split your personal allowance so that the amount allocated to ESA is equal to what you expect to receive, so that no tax is paid on it, with the rest allocated to your sick pay from work (which is what I assume the £1195 is). So with the standard allowance being £9440, taking £4000 from that leaves £5440, which would be a tax code of 544L. If the ESA works out slightly higher then 524L is about right.

I'm not sure how HMRC have calculated your tax at £200 per month, unless you have underpaid so far this year. Tax on £1195 with tax code 524L is around £150 per month, although I'm not sure what effect the W1M1 basis will have. Hopefully others with a great knowledge of the tax system will clarify, although you may have to provide more information so it might be worth digging out recent payslips.

Hope all the calculations work out OK, and good luck with your recovery.

Edited to add that HMRC may have included NI in their calculation, which is around £65 per month, so total tax and NI would be £215. You can check for yourself here http://www.thesalarycalculator.co.uk/salary.php

jimmo

Sorry to hear you have had cancer and I hope your recovery goes well.

I had already spent a couple of hours working on a reply when I saw agrinnall’s post above. I really was struggling to find some sort of balance between explaining HMRC gobbledegook or whether you just want assurance that the HRMC figure of £200 deductions per month was accurate. I agree with agrinnall that £215 seems more likely.

When I had cancer I was fortunate enough to have sufficient income to carry on and my greatest day was 5 years after the end of treatment when I was given the “all clear”.

If you can concentrate on reaching that goal without worrying too much about the details I would urge you to do so but if you need more than that, just ask.

agrinnall

Just to add that having agreed that the BR tax code is incorrect HMRC will send you a new P2 coding notice that should explain how they have arrived at the 524L figure - if that explanation isn't clear either call them again to ask them to clarify, or post again on here for more help.

jintyb

Thank you both agrinnall and jimmo for taking the time to reply and for your kind words.
My pay to date this tax year is as follows:
Apr : Gross £ 759.76 Tax £0 NI £3.15
Apr: SSP £231.20 Tax £ 40.60 NI £27.74 ( Emp'er "forgot" to include in my pay)
May: Gross 753.84 Tax £ 7.60 NI 12.94
June : Gross £1195 Tax £95.00 NI £63.47
July : Gross £1195 Tax £91.00 NI £ 63.47
All of these have tax code of 944L on my payslip. I also have a taxable ben of £ 91.53 pm for med insurance.

Does that make any difference to your calcs?

The bottom line is Im trying to work out what I will have in my mitt per month. Its so hard to budget when you don't know what your take home is going to be.
Thanks so much, I really appreciate your help.

jimmo

I calculate your ESA as

13 weeks @ 71.70 = £932.10

31 weeks @ 105.60 = £3,273.60

Total £4205.60

I would then expect your code to be :

Personal Allowance 9440

Deduct ESA 4205

Allowances remaining 5239

Code 523L

As HMRC have told you code 524L its not really worth worrying too much about a difference of 1 in your coding because that represents £2 a year in tax.

PAYE codes really work in whole tax years so if we go with HMRC for now and assume code 524L is correct you should have been on code 524L from April. As you were on code 944L you will have underpaid tax in April, May, June and July.

I estimate the underpayment as;

Difference between allowances in code and correct allowances (9440- 5240) 4200

Tax underpaid in 4 months = 4/12 *4200 *20% =£93.33. HMRC will seek to collect the underpayment from you next year but are changing your code to the correct one for August.

Therefore for August onwards your monthly tax will be calculated as

Pay for the month £1195

Allowances for the month (1/12 * 5239) 436

Taxable 759

Tax at 20% £151.80.

Your National Insurance will continue to be £63.47 so your net pay should then be (1195 - 151.80 -63.47 =£ 979.73.

Now, you’ve thrown a spanner in the works by saying you have taxable benefits of £91.53 per month.

Are you sure about that and do HMRC know?

The fact that your were on code 944L, the standard code, suggests that HMRC don’t know but you will only know with any certainty when you get the Notice of Coding telling you that your new code is 524L and how that code has been calculated.

jintyb

Jimmo - Thank you so much for taking the time to help me. Your calcs have really helped.
In answer to your question, yes HMRC know abt medical ins, I have a P11d for it. Maybe if I'd given you the culmulatives it would have been easier:
Total Gross:£ 4007.17
Taxable Gross: £4321.03
Tax paid : £224.20
NI paid: £170.77

Each month I pay £19.84 towards dental, life cover this is salary sacrifice, I think this is taxable but not NI- able. I also pay £20 gaye. The 91.33 for med ins is paid by my employer but I pay the tax on it.

Your reply has given me a rough idea what to expect and it wasn't as bad as I thought. As you will know, when you're not well your brain tends to not function logically!

jimmo

To be honest, I am really struggling to reconcile your figures from posts #5 and #7 but I am not too concerned about that just yet.

For the time being I am more concerned about your code number.

Salary sacrifice involves you giving up a part of your salary for something else and in your particular case that something else is a taxable benefit.

You are therefore correct that the overall effect is that you still have to pay Income Tax but you save on NI.

The problem however is that, just like the medical insurance that your employer pays, the benefits should be reflected in your Code Number.

Your benefits are £19.84 plus £91.33 which is £111.17 per month or £1334 per year.

I would then have expected your original coding for 2013/ 14 to be

Personal Allowance 9440

Less Benefits 1334

Net allowances 8106

Code 810L

Then, following your ESA claim, it should be

Personal allowance 9440

Less Benefits 1334

Less ESA 4205

Net allowances 3901

Code 390L

My guess is that whilst your employer may have issued a P11d for 2012/13 HMRC have not yet reacted to it.

If I am right, then, taking the benefits issue in isolation, you are currently underpaying tax at an annual rate of 1334@ 20% £266.80, roughly £22 per month.

If you are anxious to pay the correct amount of tax you will need to contact HMRC to get this sorted but if you are content to regard any unpaid tax as an interest free loan you can leave it and see when HMRC will catch up.

Can I remind you however that the outcome depends on whether my guess is accurate or not.

I would suggest you wait to get the change of Code that HMRC are to send you regarding ESA because the detail in that really should tell us whether I am right or not.

IainHL

Jimmo (and Jintyb), surely the clue lies in the difference between Total Gross and Taxable Gross?

Total Gross:£ 4007.17
Taxable Gross: £4321.03
Tax paid : £224.20
NI paid: £170.77

That difference (taxable gross being greater than total gross) is to account for the £91.33 being paid for by the employer, with the employee being liable for tax. The fact that it doesn't equate exactly to 4x the monthly amount is, I suspect, due to other adjustments owing ot the GAYE and dental and life cover.

That makes your calculations in post #6 of the right order of magnitude.

And for the benefit of agrinnall in post #2, the use of the code on a W1/M1 basis is normal for HMRC where you have underpaid tax and they are amending your code part-way through the year. It means they will recover the underpaid tax spread out over your earnings for the whole of the following year by applying a suitable adjustment to your code, as opposed to not using such a basis and you pay all the owed tax at your next payday!

jimmo

IainHL wrote: »

Jimmo (and Jintyb), surely the clue lies in the difference between Total Gross and Taxable Gross?

That difference (taxable gross being greater than total gross) is to account for the £91.33 being paid for by the employer, with the employess being liablr for tax. The fact that it doesn't equate exactly to 4x the monthly amount is, I suspect, due to other adjustments owing ot the GAYE and dental and life cover.

For what it is worth, I think the difference between Total Gross and Taxable Gross is more likely to be connected to SSP than to benefits /salary sacrifice.

Having said that it is nearly 7 years since I retired from HMRC and many years more than that since I was last directly involved with the operation of PAYE.

A lot has changed but, as far as I know, the fundamentals haven’t.

In my days the fundamentals of PAYE required employers to deduct tax from monies which passed from the employer to the employee and to report benefits in kind on forms P11D.

That really doesn’t appear to have changed and jintyb has confirmed that he, or she, has a P11D.

SSP is something I have no professional experience of but it does involve money being passed from the employer to the employee. Therefore I see it as perfectly logical for the employer to differentiate between the pay he is paying out of his own business and SSP he is paying on behalf of the Government.

If that were the case Total Gross would be the pay and Taxable gross would be pay plus SSP.

However the reality is I don’t know and that is why I tried to duck the issue, at least unless or until it becomes important.

jintyb

Thank you all for taking the time to look at my situation and offer your help.
I really appreciate it.