Tax Code - BIK change mid year

gorners

I'm looking for some help to clarify the correct change I need to make to my tax code followng moving house recently and by benefit in kind increasing due to a higher mortgage. I want to adjust my code ASAP so I don't get stung by an underpayment next year.

Basically I have worked out that, with approx 7 months of my old mortgage and 5 months on my new to pay in the tax year, it results in having a BIK shortfall of £615, which means at 40% I need to pay an extra £246 on the remaining 5 months.

My current tax code is 764L, so I worked out my new tax code should be 764-61 (61 converted from the £615 shortfall) which gives 703L. The problem I am having understanding is, if my maths is correct this new tax code will only result in me paying approx an extra £20p/m, which means I'll only pay £100 of the £246 in this tax year.

Is this the correct approach, or should I reduce my tax code further so I am paying approx £50p/m to pay it all off? Or is the code correct at 703L? If I do this, what will happen with the £146 I still owe, will it come out as a lump sum in my next wage (don't really want this), or will is just be marked as an underpayment when they work out my P60?

I think the problem is the tax code is worked out over 12 months and I'm trying to recalculate for 5 months, and I'm not sure how this is supposed to work. Any help would be appreciated.

jem16

gorners wrote: »

I think the problem is the tax code is worked out over 12 months and I'm trying to recalculate for 5 months, and I'm not sure how this is supposed to work. Any help would be appreciated.

If HMRC apply the tax code cumulatively, then the first month it's used would see 7 lots of £20 taken out at once and then £20pm going forward.

Often HMRC will apply the tax code on a Month1 basis so that you don't get hit with a large tax payment in that first month but of course that means you have an underpayment at the end. This would be collected in a future tax year, probably 2017/18.

You can ask specifically for it to be a cumulative tax code and that you understand the first month would see a higher tax bill.