Query with my tax code after handing my company car back.

Pauli354

After months of pondering and waiting on my private car arriving, I have at last handed my company car back over the last few days. I am now driving my own vehicle for business purposes.
I went onto the Govt gateway and removed the car benefit from my tax status. I had been on a code of 256L, and it moved to 256T
This is where I got confused, so rang HMRC who only partly explained how it would work. Basically, I am trying to find out what tax I will pay for the remaining tax year until end Mar 19.

Conveniently, the company car was handed back exactly 6 months into the 18/19 tax year, so I now have 6 months of this tax year without company car.

I understand I don't go straight onto the 1185L code (I have no other taxable benefits) but I am confused at how the calculation works.
If anyone can advise me it would be appreciated.
The actual figures I am working off are as follows:

Gross salary 18/19 £42k
Tax code for last 6 months with company car 256L (HMRC have my co car benefit as £9288)
11850 less 9288 is £2562, or code 256L, all good.

So I went on the Govt Gateway, updated and removed the co car benefit, and the website advised me my new code is 256T. This bit I don't understand. Is this because they have to check before applying the changes?
The assessor I spoke to also said I would get a rebate in my Oct 18 pay, and then a revised tax code for the last 6 months to April 19. From April 19, I should be on 1185L.
Can anyone advise what this rebate on Oct would total to, and what my tax code is likely to be for the rest of 2018?
My tax for the first 6 months with the car is approx £743 per month.

BoGoF

256L will collect the same amount of tax as 256T. It sounds like the benefit has not been reduced

Pauli354

Is that because they need time to verify with my employer?

BoGoF

No, they should take your word for it. You sure you entered an end date for the car?

Pauli354

I did yes, the govt gateway actually shows date car given back as 03/10/18. Have you any ideas from my initial post what my tax code might be for the next 6 months. Having read some other threads, it seems a rebate of some kind will also come through on the next pay statement?

badmemory

I'll try to go some way towards explaining what may have happened. This personal tax account is a bit odd, in that the day you made the changes then this new tax code was actually correct. It should keep changing daily as daily the tax due reduces. Go in & check again what it says next week & you may get a better picture!

Berkshire_Beancounter

The T suffix in your new tax code denotes it is temporary, so yes, I would assume it's because HMRC want to review your tax situation.

I was in a similar position last year, although in my case I left one employer and ceased having a company car. Whilst HMRC registered the change of employer in my tax code, they hadn't removed the car benefit hence it was still impacting my tax code. I went into my online account and updated my benefits to remove it; I was then put onto a 'month 1' code for the rest of the tax year.

If something similar happens to you, I would expect your tax code to be 1185L/1. That means your tax is calculated without reference to cumulative pay and tax from previous months and your tax is based on that month's salary and an allowance of £11850/12. That's to stop any tax due in previous months being collected all at once; or to prevent a refund of tax which is really due, when the personal allowance changes partway through the year.

Of course, depending on how quickly HMRC move you from a 256T to a 1185L/1 (or whatever) code, you may have overpaid tax for a month or two, until you get a new code and your payroll department start using it. How quickly it gets used will depend on how fast HMRC review your code, how quickly your payroll department apply any changes and their cut off point for changes - our payroll department used to need any changes to details about two weeks before payday, otherwise any changes had to wait till next month to be applied.

If you do get a 1185L/1 tax code and overpay tax for a month or two, then the way in which the month 1 code works means you won't automatically get a refund. You can apparently tell HMRC that your tax figure is wrong using your online account (government gateway) although I didn't do this, I just waited until the year end and got a refund after I'd completed my tax return.

In terms of how much less tax you'd pay, I worked it out as:

With car:
Annual salary £42,000
Less personal allowance £2562
Total taxable income £39,438
Tax is due on:
£34,500 at 20% = £6,900
£4,938 @ 40% = £1975.20
Total tax = £8875.20 per annum or £739.60 per month - pretty close to your £743 figure

Without the car the figures become
Annual salary £42,000
Less personal allowance £11,850
Taxable income £30,150
Tax is due on:
£30,150 @ 20% = £6,030 per annum or £502.50 per month

So..on those figures, for every month you have the 256T tax code after you handed back the car, you would be overpaying tax by £237.10.

Pauli354

Thanks BB.
Have you any idea what the rebate would be in my October pay that HMRC alluded to?

Pauli354

Ok, an update on where I am.
I rang HMRC today. They made adjustments, but I am still in the dark as to how they come to their conclusions on my new tax code. Other than, "we don't put you immediately on your full 1185L code, or you would pay too less tax the rest of the year", I am a bit flummoxed at how to work this out. Hopefully someone will understand the figures: I'll recover where I am.

Up until this month, I had a company car. The benefit for tax purposes was £9288. I have no other benefits.
My tax code was correct at 256L. I was paying tax at £743 approx per month.

The car is now gone. HMRC today adjusted my code again to 724L for the last 5 months of this year. I understand I have to have a company car deduction on my code for the entire year albeit, for the next 5 months it will be a less painful code. Where did they come to a 7240 figure?

I will still end up paying more tax than I should this year with this revised code. Is this normal protocol, and if so I am presuming I will be entitle to the difference as a refund or am I looking at this the wrong way? If entitled to a refund, when would I normally get this? I've seen some posts here suggesting the first salary after the change, and other posts saying not until the end of the tax year.

By my calculation, I have paid all the company car tax due for the 2018/19 tax year already. With this 724L code, I will be now be overtaxed on a further £4610 over the next 5 months of this tax year, before I get my full 1185L code implemented on April 1st 2019.
Do you guys agree this new code is correct and how should I proceed?

Many thanks

p00hsticks

Pauli354 wrote: »

By my calculation, I have paid all the company car tax due for the 2018/19 tax year already. With this 724L code, I will be now be overtaxed on a further £4610 over the next 5 months of this tax year, before I get my full 1185L code implemented on April 1st 2019.
Do you guys agree this new code is correct and how should I proceed?

Many thanks

By my reckoning six months car allowance is £4,644, subtracting this from your tax allowance of £11,850 gives £7,206 so a tax code of 720L - close to the 724 you quote.

Assuming that this is a cumulative tax code (i.e. no 'X' or 'Month 1' indicator) then when applied this will ensure that the correct amount of tax is deducted over the year - your next months payroll will autimatically look at how much tax you have already paid and adjust the tax deductions (up or) down accordingly.

If you went straight to a 1185L code you'd end up with all the tax already correctly deducted for your car being refunded back to you over the rest of the year, which would not be the correct result.

Pauli354

p00hsticks wrote: »

By my reckoning six months car allowance is £4,644, subtracting this from your tax allowance of £11,850 gives £7,206 so a tax code of 720L - close to the 724 you quote.

your next months payroll will autimatically look at how much tax you have already paid and adjust the tax deductions (up or) down accordingly.
.

Thanks p00hsticks. For the bit highlighted above, are you saying that even though HMRC adjusted my code over the phone today to 724l, it will likely change again next month?