This doesn't look right but HMRC say tax code is correct!?

bavli

I asked this question on another board but could not get a concise answer. I have phoned HMRC to check if this is correct and they have said I have the correct tax code but it looks wrong to me and I don't want to end up paying lots back in underpaid tax next year if it is wrong.

I noticed my tax code changed at the beginning of this tax year.

My tax code is now: 2462L.

My April gross pay was: £7,333.33
My May gross pay is: £7,333.33

My gross pay for the year should be £88,000 and I am hoping to pay £26,400 into my pension. My pension provider tops this up with 20% tax relief, so gross pension contribution of £33,000 (my pension contribution plus pension provider reclaimed tax relief added inside my pension).

In April I paid £2,200 into my pension and in May I also paid £2,200 into my pension so £4,400 in total.

My payslip for May says;

Employee to-date totals;

Gross NIable: £10,266.66
Gross Taxable: £10,266.66

Employee tax: £1,397.73
Employee NI: £760.66
Employee pension: £4,400
Net pay: £8,108.

My after tax/NI/pension contribution salary for April and May has been £4,054.34 (per month).

If it is incorrect, what should my tax code be? I would rather not have to claim back my extra 20% relief for my pension contributions via my tax return and I am hoping they are paying me this through my tax code, hence why it is strange but I cannot work out if it is correct or not. I don't have any taxable savings all in ISA's and don't get any interest on my small amount of cash in my current account.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/70748568#Comment_70748568

Have you requested a 2016-17 Notice of Coding from HMRC?

Linton

I think you are paying too little tax £88K-£26400=£61600 net. According to an online tax calculator this should give rise to take home pay of £43195 - £7200 for 2 months.

From the figures what seems to be happening is that your employer is paying your pension from gross pay so you shouldnt get any extra tax relief as you arent charged tax on it anyway. HMRC seem to think your pension is being paid net and so giving you 20% tax rebate. If you are paying net, the other 20% goes into your pension.

bavli

Linton wrote: »

I think you are paying too little tax £88K-£26400=£61600 net. According to an online tax calculator this should give rise to take home pay of £43195 - £7200 for 2 months.

From the figures what seems to be happening is that your employer is paying your pension from gross pay so you shouldnt get any extra tax relief as you arent charged tax on it anyway. HMRC seem to think your pension is being paid net and so giving you 20% tax rebate. If you are paying net, the other 20% goes into your pension.

Thank you. I think this is what is happening too. I tried to explain this to the HMRC person but she didn't understand what I meant. I will have words with the company accountant to see if this can be amended. But if they have the correct tax code, how do they adjust this?

bavli

xylophone wrote: »

https://forums.moneysavingexpert.com/discussion/comment/70748568#Comment_70748568

Have you requested a 2016-17 Notice of Coding from HMRC?

The HMRC bot said she would resend as I didn't get the new one originally (but my tax code was correct).

xylophone

The HMRC bot

https://en.wikipedia.org/wiki/Internet_bot

"Typically, bots perform tasks that are both simple and structurally repetitive, at a much higher rate than would be possible for a human alone."

Crumbs! I knew that HMRC were cutting staff.........:D

zagfles

bavli wrote: »

I asked this question on another board but could not get a concise answer. I have phoned HMRC to check if this is correct and they have said I have the correct tax code but it looks wrong to me and I don't want to end up paying lots back in underpaid tax next year if it is wrong.

I noticed my tax code changed at the beginning of this tax year.

My tax code is now: 2462L.

My April gross pay was: £7,333.33
My May gross pay is: £7,333.33

My gross pay for the year should be £88,000 and I am hoping to pay £26,400 into my pension. My pension provider tops this up with 20% tax relief, so gross pension contribution of £33,000 (my pension contribution plus pension provider reclaimed tax relief added inside my pension).

In April I paid £2,200 into my pension and in May I also paid £2,200 into my pension so £4,400 in total.

My payslip for May says;

Employee to-date totals;

Gross NIable: £10,266.66
Gross Taxable: £10,266.66

Employee tax: £1,397.73
Employee NI: £760.66
Employee pension: £4,400
Net pay: £8,108.

My after tax/NI/pension contribution salary for April and May has been £4,054.34 (per month).

If it is incorrect, what should my tax code be? I would rather not have to claim back my extra 20% relief for my pension contributions via my tax return and I am hoping they are paying me this through my tax code, hence why it is strange but I cannot work out if it is correct or not. I don't have any taxable savings all in ISA's and don't get any interest on my small amount of cash in my current account.

This makes no sense at all. I think you are confused. Your payslip clearly shows your pension contributions are taken before tax is applied, ie you pay tax on [gross salary minus pension contributions]. In fact it looks like contributions are taken by salary sacrifice since your NI'able pay is also reduced by the contribution.

Yet you say your "pension provider tops this up with 20% tax relief"? That can't possibly the case unless there's a very serious error somewhere! Or you have 2 pensions you are contributing to? The provider will only top it up with 20% relief if it's a RAS scheme (relief at source). If you really are getting a 20% top up by the provider you need to get it sorted or you will owe a lot of tax!

In addition to this, your tax code seems to have been adjusted on the assumption you're paying into a RAS scheme to give the extra 40% tax relief!

You're going to owe a hell of a lot of tax if this isn't sorted - but your main problem is with your employer not HMRC, why are your pension contributions being treated as RAS contributions when they are sal sac (technically "employer contributions").

bavli

zagfles wrote: »

This makes no sense at all. I think you are confused. Your payslip clearly shows your pension contributions are taken before tax is applied, ie you pay tax on [gross salary minus pension contributions]. In fact it looks like contributions are taken by salary sacrifice since your NI'able pay is also reduced by the contribution.

Yet you say your "pension provider tops this up with 20% tax relief"? That can't possibly the case unless there's a very serious error somewhere! Or you have 2 pensions you are contributing to? The provider will only top it up with 20% relief if it's a RAS scheme (relief at source). If you really are getting a 20% top up by the provider you need to get it sorted or you will owe a lot of tax!

In addition to this, your tax code seems to have been adjusted on the assumption you're paying into a RAS scheme to give the extra 40% tax relief!

You're going to owe a hell of a lot of tax if this isn't sorted - but your main problem is with your employer not HMRC, why are your pension contributions being treated as RAS contributions when they are sal sac (technically "employer contributions").

It is a stakeholder scheme. Yes, I definitely receive 20% relief as I can look at my pension and see it there. My company said they would not use salary sacrifice, so I am very confused. Last tax year I paid tax and NI first and then the pension contributions were taken off as I have all my payslips which show tax was paid on my gross income which is much higher than the last two payslips. The change seems to have happened since April. Will need to contact the account to find out exactly what is going on. Thank you for your reply.

bavli

It is a stakeholder scheme. Yes, I definitely receive 20% relief as I can look at my pension and see it there. My company said they would not use salary sacrifice, so I am very confused. Last tax year I paid tax and NI first and then the pension contributions were taken off as I have all my payslips which show tax was paid on my gross income which is much higher than the last two payslips. The change seems to have happened since April. Will need to contact the account to find out exactly what is going on. Thank you for your reply. Would you be able to tell me exactly what my salary should look like on the assumption that I am getting the 20% tax relief paid into my pension and I am getting the other 20% via my tax code because all the salary calculators give me different results and I am very confused.

zagfles

bavli wrote: »

It is a stakeholder scheme. Yes, I definitely receive 20% relief as I can look at my pension and see it there. My company said they would not use salary sacrifice, so I am very confused. Last tax year I paid tax and NI first and then the pension contributions were taken off as I have all my payslips which show tax was paid on my gross income which is much higher than the last two payslips. The change seems to have happened since April. Will need to contact the account to find out exactly what is going on. Thank you for your reply. Would you be able to tell me exactly what my salary should look like on the assumption that I am getting the 20% tax relief paid into my pension and I am getting the other 20% via my tax code because all the salary calculators give me different results and I am very confused.

If it's a RAS scheme then you should be paying tax and NI on your whole salary, and your tax code should be increased to give you the higher rate relief.

If you put £33,000 gross in, you are due an extra 20% relief on that £33k, the way HMRC work this is to increase your tax free amount by half of that, giving you 40% relief on half which equals 20% relief on the full amount.

Personal allowance is £11,000, half of £33,000 is £16,500, so tax free amount £27,500 so tax code should be 2750L.

Your payslip should show you taxed and NI'ed on £7333.33, I make tax £1483.03 and NI £424.33.

However - you are likely to be better off using sal sac as you will save a little in NI, also your employer will save a lot in NI which you could ask them for a cut of! You just need to make sure that your employer and your pension provider understand that it is employer contributions and so not give you tax relief in the scheme.

Using sal sac, your payslip should look as you quoted it EXCEPT that your tax code should not include any adjustment for pension, so should be 1100L if no adjustments for other reasons. Which would increase your tax about £454.

bavli

zagfles wrote: »

If it's a RAS scheme then you should be paying tax and NI on your whole salary, and your tax code should be increased to give you the higher rate relief.

If you put £33,000 gross in, you are due an extra 20% relief on that £33k, the way HMRC work this is to increase your tax free amount by half of that, giving you 40% relief on half which equals 20% relief on the full amount.

Personal allowance is £11,000, half of £33,000 is £16,500, so tax free amount £27,500 so tax code should be 2750L.

Your payslip should show you taxed and NI'ed on £7333.33, I make tax £1483.03 and NI £424.33.

However - you are likely to be better off using sal sac as you will save a little in NI, also your employer will save a lot in NI which you could ask them for a cut of! You just need to make sure that your employer and your pension provider understand that it is employer contributions and so not give you tax relief in the scheme.

Using sal sac, your payslip should look as you quoted it EXCEPT that your tax code should not include any adjustment for pension, so should be 1100L if no adjustments for other reasons. Which would increase your tax about £454.

Thank you. My payslip for March (so previous tax year) says;

Total pay: £7,333.33
Tax: £1,595.85
NI: £419.23
Pension: £2,200
Net pay: £3,118.25

Does that look correct to you? I know my company changed to a different system in April which seems to have been when things went crazy with the pay. .