Tax Code and 'Underpayment Restriction'

emmzickle

I have received a letter from HMRC asking me to check my tax code for 2016/17. I am PAYE and have never received a letter like this before.

The code they have given me a tax code of 1015L.

My personal allowance is £11,000 but they have deducted a 'Underpayment Restriction' of £848 leaving me with £10,152 as a tax free amount.

I am unsure how they have calculated the £848 underpayment restriction.

In October last year I received a letter from saying that I had underpaid tax by £169.60 (I'm not sure how as like I said I'm PAYE but I did change jobs in the middle of a month so wondered if it was something to do with that), but I didn't need to do anything as the underpayment would be collected through my tax code in 2016.

Does anyone know how they calculate the restriction from the underpayment as to me it seems like quite a big difference between £169.60 underpayment and £848 restriction? I've read something online about an 'individual's rate of liability' being used to calculate the restriction but I have no idea what this means. If the restriction is more than the amount I owe won't I end up paying too much tax in 2016/17?

I am going to give them a call tomorrow but wondered in the mean time if anyone here could shed any light so I am a bit more informed when I speak to them.

Many thanks in advance.

zagfles

169.60 is 20% of 848, that's a bit of a clue. If you pay basic rate tax, by reducing your tax free amount by 848 you pay 169.60 extra in tax.

emmzickle

Thank you!
That makes much more sense.
So basically the tax code they've calculated for me is right.

CLAPTON

emmzickle wrote: »

Thank you!
That makes much more sense.
So basically the tax code they've calculated for me is right.

its correct if you are a 20% taxpayer and you actually do owe the £169

if you wish to post up your 2014-15 figures then we could possibly check for you

chrisbur

From what you have said the most likely explanation is that your new employer was using the emergency tax code until the tax year end and the first month it was used overlapped the last month your old employer made your final payment. The result was that you had 13 tax allowances instead of 12 which would result in you being under-taxed £166.66. The rest would probably be caused by the tendency of the PAYE system to slightly under-tax everyone.
As advised if you give the full figures this can be checked.

emmzickle

I'll dig out my 2014/15 wage slips and the letter HMRC sent me in October.

At the moment I only pay 20% but with my personal allowance reduced to£10,152 I'm a little concerned, depending on any enhancements I get for working weekends etc. for the this upcoming tax year.

As I work in the NHS we usually get an increase on 1st April, however this has been frozen at my banding and I'm not 100% sure whether this freeze is continuing.

If it does, I will start the tax year earning £40,964 p/a but in the middle of September if I qualify for my increment (which all being well I will), I will rise to £42,612 p/a. With my reduced personal allowance my increased wage would put me over higher rate threshold, but averaged out over the year I shouldn't go over?

Sorry for being incredibly blonde - I've never run into a problem with my tax payments before (and I've never earned enough before to be thinking about higher rate tax!)

p00hsticks

emmzickle wrote: »

If it does, I will start the tax year earning £40,964 p/a but in the middle of September if I qualify for my increment (which all being well I will), I will rise to £42,612 p/a. With my reduced personal allowance my increased wage would put me over higher rate threshold, but averaged out over the year I shouldn't go over?

Bear in mind that any pension contributions that you might make get deducted out of your pre-tax pay, so if you are paying into the NHS pension (and if not, why on earth not!) then this will almost certainly keep you in basic rate territory.

emmzickle

p00hsticks wrote: »

Bear in mind that any pension contributions that you might make get deducted out of your pre-tax pay, so if you are paying into the NHS pension (and if not, why on earth not!) then this will almost certainly keep you in basic rate territory.

Ah yes, I didn't think about the money I'm paying into my pension. Should be fine then thank you!