Tax code update- amounts halved and no personal savings allowance

janeskips

Hello,

I submitted my self assessment for the first time a few weeks ago and I have now received an updated tax code for 2016/7. I don't understand it.

- In addition to the 11000 personal allowance, I now have a "Personal Pension Relief" line that is exactly half my gross SIPP contribution (net payment plus top-up from provider) from last year. It is not the tax relief I claimed as suggested in the note on the back, in actuality the amount comes to be 2.5 times the tax relief I claimed. Is it some sort of prorating to catch up on remaining months left to April? (There was no estimate for this line until now because I had never contributed to a SIPP until last year and the first formal HMRC came to know about it was through the SA)

- Similarly, the line that was previously "less untaxed interest" is now gone and seems to have been replaced with "less higher rate tax adjustment". The note on the back mentions company dividends being untaxed income and extra tax being due on my savings income which I presume is the correct description also for regular bank interest (I don't receive company dividends). Again, the updated amount is exactly half the interest savings income I had last year which I had declared in my 15/16 SA. Is this again some sort of prorating? Why is it half? The estimate (previously described as "less untaxed interest" until this update) had been in my tax code calculation since the beginning and was very close to the actual number so unlike the new pension line which has appeared for the first time halfway through the tax year, I don't understand why it would be prorated.

- The Personal Savings Allowance of 500 is gone. Why? I am still a higher rate tax payer.

Thank you

Savvy_Sue

We might be able to help if you gave more detail, including numbers.

janeskips

I don't see how the numbers change the answer to this but as you asked here they are. There isn't any more detail to give.

Personal Pension Relief 7500
Less untaxed interest 1335

Dazed_and_confused

HMRC do not normally give tax relief in this years tax code for things like pension payments, anything in this years tax code is an estimate for this year which has been based on your return for last year.

It really is difficult for anyone to give useful help without knowing the full details. In this ideally everything you declared in your tax return for last year and also everything which makes up your new tax code, including how much the HMRC think you will earn with your current employer this year.

The best place to get the detail for your tax code is via your personal tax account.

Without the extra info don't expect more responses (lack of pertinent information is a very common issue on this board and frequently bemoaned by the more helpful posters)

janeskips

Thank you for some clarification that relief on pension is not normally included in the tax code. I understand your general point but what "full details" are still lacking, what "extra info" still required to answer?

I did an SA for the first time. I am employed and usually just do PAYE. I did SA for the additional tax relief refund on SIPP which I started last year as explained.

Those 2 amounts, and as described initially, are half the amounts from last 15/16 SA. So, 15000 gross SIPP on which an additional 3000 tax relief was given and 2670 savings income on which additional tax was due.

There really isn't any other info and nothing else has changed or is changing.

Dazed_and_confused

Maybe I didnt word my post very well!

Tax relief on pension payments is often included in tax codes but it is always for the current tax year.

In your situation you will have received the tax relief for 2015:16 via your tax return calculation and the HMRC will be assuming you are going to pay a similar amount in this current tax year so the tax relief being given via this years tax code is nothing to do with the actual pension payment you made during 2015:16 but is an estimate of pension relief due for this year. If you aren't going to be higher rate payer or don't make pension contributions of a similar amount to last year this will cause you to underpay tax.

Your latest post enlightens us with regard to the pension relief amounts but throws up a couple of other questions.

Is the £2670 saving income the gross income before tax or net after tax and is this normal interest from a building society or bank or similar institution?

What is your expected salary this tax year? Without knowing this it is impossible to say how your tax code should be calculated. If you are on £40000 then no extra pension relief would be due so no code change but if on £80000 it would be different.

Similarly a figure in the £40000 -50000 range may be borderline for being higher rate with that level of pension contribution.

Tax is all about the detail and there's still some missing here I'm afraid.

janeskips

So the tax relief on pension should be included. That was 3000 last year declared in my SA the other week. Why have they put 7500? I am a higher rate tax payer and will contribute the same to pension but I would still underpay tax with the 7500 estimate.

You say my latest post "enlightens" on pension relief. How? Please explain how it enlightens the situation.

As for your other questions, 2670 was gross bank savings income last year. It is bog standard banking- Santander and Nationwide. The estimate used before was 3000 which was close enough. Why have they put 1335?

Your salary question makes no sense. If I had 40000 income, I would not receive additional tax relief on pension, it would just be the top-up...

I am on higher rate so that the 15000 to SIPP is fully eligible for tax relief.

For whatever reason, they have halved the amounts from my SA. The savings income isn't such a big problem, it will be under 2000 next year but the pension relief line makes no sense as it isn't the relief, it is the whole contribution and makes a big difference.

Dazed_and_confused

So, without salary this is somewhat guess work but the pension relief in your code would look to be correct if we assume you are entitled to 40% relief in the full amount.

You received relief for the actual 2015:16 payment via your tax return and the HMRC have assumed/estimated you will make the same pension payment of £15000 again this year.

£15000 payment with 40% tax relief due on it all equals £6000 relief in total.

Your pension company credit you with the basic rate tax relief of £3000 and the HMRC sort the remaining £3000.

Including an entry of £7500 in your tax code means your employer will tax you on £7500 less of your wages and this will save you £3000 if all of this £7500 would otherwise have been taxed at 40% (7500 x 40% = 3000)

Simples :T

Will let you work out the savings interest element

Discodave

When you submit your Tax Return (TR) for 15/16, your taxcode, autocodes for this year, based on what figures are on the TR itself. Because you have claim PPR (Personal Pension Relief), it assumes you will claim similar this year.

It will always show as half the figure, ie: PPR of 6000 will give you a tax relief of 3000, providing your a higher rate taxpayer, as PPR is only given to those that pay 40% tax

with the Invest Interest amount, did you leave this off the TR, as to me it seems you havent entered a figure for this, and thus the code has removed it

a call to HMRC 0300 200 3300 will soon put your code back to how it was

janeskips

I just don't follow what you are saying. The tax relief on pensions for higher rate is an additional 20%. Last year I contributed 12000, my pension provider added the basic rate top up of 20% = 3000. HMRC gave me the additional 20% = 3000 as a higher rate after the SA.

That was what I was expecting to see in my code for 16/17. Why would it show half? 7500 would give 3750 relief according to your statement and example, that is simply not right.

7500 x 40% = 3000 is the only maths to get to the number I expect but it doesn't make sense to show it like this in the tax code because it is increasing my tax free allowance by 7500 and not 3000. If I do the same pension contribution in 16/17 I would have underpaid tax by 4500.

By "Invest Interest" I presume you mean the bank interest. As I have mentioned the estimate was in the code before the SA/TR, actual entered in the SA/TR. I have had this for many years, previously notified HMRC by letter as I was not doing the SA before so I am familiar with how this should work. The description has changed but I thought that may be related to the change in the bank interest being gross. It is half which I don't understand and the 500 allowance has disappeared which I don't understand. My understanding was the 500 allowance only disappears for additional rate, I am nowhere near this, I am on the low end of the higher rate scale.

Dazed_and_confused

Let's try putting it in a different way.

On the top part of you salary are due to pay 40% tax which your employer deducts under PAYE.

HMRC add an adjustment of 7500 pension allowances to your tax code, for example your code changes from 1100L to 1850L.

Your employer uses the new code number and (by the end of the tax year) no longer deduct any tax from the top 7500 element of your salary because of the extra allowances in your tax code.

You would normally have paid 3000 tax on this 7500 (7500 x 40%) so HMRC including the pension allowance of 7500 has allowed you to get the higher rate pension relief of £3000 you are entitled to (assuming you do make anither similar payment in this tax year)

Simple maths really