Questions about tax code

Paratink

Please excuse me if I have posted this in the wrong place - this is my first time here!!!:hello:
I have been having a bit of a battle with the tax man. It is claimed I was overpaid some tax credits - some dating back as far as 2006. I claimed that any overpayment was entirely their fault as I had kept them informed of any change in circumstances as I went along. I stopped claiming any tax credits about eight years ago.
After much correspondence, it appears that I have to pay the amount back. I offered to pay £100.00 per month - they completely ignored my offer and now have received a notice that they have changed my tax code and will be collecting the £4003.00 they say I owe via PAYE. My tax code is now K304 and, having done some calculations, it would appear that this will reduce my take home pay by about £220.00 per month!!!! Whilst I can make adjustments to accommodate this, it will mean that there will be no holiday for us this year. I understand this is no hardship compared to what some people have to put up with, it is still very frustrating.
My question is this, if I do any overtime in any given month, it stands to reason that I will pay more tax on that month's earnings. If I do overtime and pay more tax in any month, does that mean that the debt will be paid off earlier and my tax code will change back to normal when it is paid? If so, will this be automatically done. I have no idea how to keep a track of this. Please help - I don't understand!!!!

purdyoaten

No - it does not work like that. If HMRC has adjusted your code to collect £220 per month - that is what will be collected (unless you go into higher rate tax). If you work overtime, you will have more net pay but you will still only pay £220 more than you would before the tax code change.

What was your previous tax code? Are you a higher rate taxpayer?

Paratink

Thank you
My previous code was 1014L. The coding letter, however says that I will pay 20% on the first £31785, 40% on income between £31786 and £150000 and 45% on anything over 150000.
It also says they expect me to pay 20% on an extra £7584.00 and 40% on an extra £6213.20,
I calculated the approx £220.00 myself using an online calculator into which you enter your salary and your new tax code and I gives you your projected take home.
I am struggling to get my head around all this!!!

CLAPTON

Paratink wrote: »

Thank you
My previous code was 1014L. The coding letter, however says that I will pay 20% on the first £31785, 40% on income between £31786 and £150000 and 45% on anything over 150000.
It also says they expect me to pay 20% on an extra £7584.00 and 40% on an extra £6213.20,
I calculated the approx £220.00 myself using an online calculator into which you enter your salary and your new tax code and I gives you your projected take home.
I am struggling to get my head around all this!!!

you used to have a tax code of 1014L so have 10140 tax free
now you have nothing tax free but an extra 3040 at 20% tax

so the change is 20% of (10140+3040) =20% of 13,180 = 2636

or £219.66 per month

purdyoaten

If you work out 20% of £7584 PLUS 40% of £6213 you get close to the amount underpaid of £4003.

However this works out at over £330 per month!

In my view this is unreasonable. I would be ringing HMRC and asking them to 'code out' over two years at least. I know that you are a higher rate taxpayer but I would still claim hardship as your grounds. Let us know how you get on - and fight your cause on this one!

purdyoaten

CLAPTON wrote: »

you used to have a tax code of 1014L so have 10140 tax free
now you have nothing tax free but an extra 3040 at 20% tax

so the change is 20% of (10140+3040) =20% of 13,180 = 2636

or £219.66 per month

I suppose that we really need to know the earnings - HMRC seem to think that he will be HR according to the P2.

Paratink

My salary is £24799.00 plus a 25% payment for working unsocial hours - I think making £30998.75. I don't think I am in the higher tax bracket. I imputed all this information into the calculator and it came up with a difference of about £220.00. Please tell me it is not £315.00 - I could not suck that up!!!
Will it be worth my doing any overtime at all?
Thank you for your help - I am befuddled by this!!!

purdyoaten

CLAPTON wrote: »

whilst the change in code pushes more of the income into the 40% tax band : the increase is still only 20% as the OP would already be paying 20% tax

I can't agree with that - or am I missing something?

If one earns £50000 on a code of 1000L, the tax payable is £7674.60

If the code is 800L - the tax payable will be £8474.60 - an increase of £800 - 40% of the 2000 restriction.

That is what HMRC take into account when doing coding adjustments. If they wish to collect an extra £1000, the restriction would be 2500 if HR, 5000 if not.

Edit - as op has now confirmed salary is below HR threshold (despite what HMRC say) - my previous post is somewhat irrelevant.

Paratink

Ps - I used Martin's own tax calculator for the calculation I made :money:

purdyoaten

Paratink wrote: »

My salary is £24799.00 plus a 25% payment for working unsocial hours - I think making £30998.75. I don't think I am in the higher tax bracket. I imputed all this information into the calculator and it came up with a difference of about £220.00. Please tell me it is not £315.00 - I could not suck that up!!!
Will it be worth my doing any overtime at all?
Thank you for your help - I am befuddled by this!!!

It will be £220 or so - HMRC appear to have estimated your income too highly - hence the '£6213 at 40%'

At the end of the year you will still owe around £1360 though.

Paratink

Thank you.
I think the higher amount might have been calculated because most months I try to do some overtime.
Do you think it will be worth my while doing any overtime now or will it be too highly taxed to be worth my while?
Does this mean I will have a higher tax code next year too? I could try (again), before the start of the 2016/17 tax year, to negotiate with them to pay that back over the year at a rate of about £114.00 per month. Thoughts?
I really appreciate your help xxx