Can someone please explain?

jra505

Hello,

As a result of a tax code change midyear, I received a tax code notice from HMRC, which shows the following (I've blanked out my employers name):



Over the course of this year, I've been earning child benefit and this now has to be paid back due to my earnings being over £50k. If left unchecked, I would have earned £1788.80 in child benefit over the course of this year, and so to claim this back they have generated an "income" of £4472 which will be taxed at 40% (0.4 * 4472 = 1788.80)

I've also been earning but as of yet not paying any tax on my medical insurance benefit and earnings from a property which I rent out.

All this I understand, and I also understand that this change in tax code is so that I can square up with HMRC, which is totally fine.

What I don't understand is where the figure of £3103.60 comes from.

Not only that, I have just received my December pay slip (the first payslip since my tax code changed), and I have paid an extra £1071.20 in tax if I compare it to my November pay slip. The tax code notice letter says that they will "reclaim the £3103.60 in equal instalments between now and 5th April 2019", so that means I've still got January, February and March payslips to come, and if each of them deduct an additional £1071.20 from me then in total I would have paid back £4284.80, not £3103.60


I am sure I (or they) must have made a mistake somewhere, but can anyone on here point me in the right direction of what it is?

Thanks,

jra505

Pennywise

Your tax on the property income and the child benefit clawback amount to the ~ £4k, so is being collected at ~£1k per month Dec to March. Heaven knows where they get the £3k figure - but their PAYE coding notice system is pretty poor, so no surprise it's not right.

agrinnall

Where does the £20978 come from and what does Note 7 say? I'd suspect that both of these have some relationship to £3103.60.

jra505

Hi,

Note 7 says this:



I just phoned them, and now I'm even more confused, because the person I spoke to said that the £3103.60 only covers the period between now and April, and I also need to catch up with the period between last April and now.


Pretty sure he is talking nonsense.


jra505

Dazed_and_confused

The £20978 figure is to ensure that the tax code is reduced sufficiently to collect an additional £3103.60 in the period from when the new tax code was issued (date not provided yet in this thread) and the 5 April 2019.

From the information provided so far it looks like the op is clearly paying plenty of higher rate tax and as the code prefix is K not SK they are rest of the UK resident at present, not Scottish resident for tax purposes. Which means 40% is the relevant tax rate.

The addition of the £20978 will result in approx £171 additional tax being paid for each week of the tax year. Assuming HMRC actually issued the new tax code a couple of weeks ago that would mean the figures were calculated on there being 18 weeks left in the tax year. £171 x 18 = £3078. Obviously not £3103 but we don't know the op's taxable salary or when the tax code was issued so there is some scope for small differences.

What is slightly surprising is that the op has opted to have their tax code adjusted in this fashion. Most people who post on MSE would be opting to pay everything possible, certainly tax on the property income and possibly the Child Benefit, via Self Assessment i.e. 31 January 2020 for the current tax year. Not paying it during the tax year.

I just phoned them, and now I'm even more confused, because the person I spoke to said that the £3103.60 only covers the period between now and April, and I also need to catch up with the period between last April and now.

That is sort of correct but maybe explained very clearly. The adjustment of £20,978 is an attempt to collect additional tax from earlier in the year from now until the end of the tax year. Including the property income and Child Benefit in the tax code now will be collecting additional tax for the period from now until 5 April 2019. So the tax code is trying to do both.

You do need to remember that tax codes are only ever an attempt to collect the correct amount of tax during the year. For lots of reasons this isn't always possible and it is only on (accurate) completion of your Self Assessment return that your actual tax liability be established. Obviously paying more now, however that is achieved, will reduce any tax ultimately payable via Self Assessment.

jra505

Dazed_and_confused wrote: »

The £20978 figure is to ensure that the tax code is reduced sufficiently to collect an additional £3103.60 in the period from when the new tax code was issued (date not provided yet in this thread) and the 5 April 2019.

From the information provided so far it looks like the op is clearly paying plenty of higher rate tax and as the code prefix is K not SK they are rest of the UK resident at present, not Scottish resident for tax purposes. Which means 40% is the relevant tax rate.

The addition of the £20978 will result in approx £171 additional tax being paid for each week of the tax year. Assuming HMRC actually issued the new tax code a couple of weeks ago that would mean the figures were calculated on there being 18 weeks left in the tax year. £171 x 18 = £3078. Obviously not £3103 but we don't know the op's taxable salary or when the tax code was issued so there is some scope for small differences.

What is slightly surprising is that the op has opted to have their tax code adjusted in this fashion. Most people who post on MSE would be opting to pay everything possible, certainly tax on the property income and possibly the Child Benefit, via Self Assessment i.e. 31 January 2020 for the current tax year. Not paying it during the tax year.



That is sort of correct but maybe explained very clearly. The adjustment of £20,978 is an attempt to collect additional tax from earlier in the year from now until the end of the tax year. Including the property income and Child Benefit in the tax code now will be collecting additional tax for the period from now until 5 April 2019. So the tax code is trying to do both.

You do need to remember that tax codes are only ever an attempt to collect the correct amount of tax during the year. For lots of reasons this isn't always possible and it is only on (accurate) completion of your Self Assessment return that your actual tax liability be established. Obviously paying more now, however that is achieved, will reduce any tax ultimately payable via Self Assessment.

Thanks very much for your detailed reply. The new tax code was issued (or at least the letter was dated) 22 November 2018.

Regarding your question about why I opted to do it this way, it wasn't really of my choosing - I belatedly realised that I needed to be doing self assessments only in October of this year, and ended up having to catch up for FY16/17 and FY 17/18 (via a large one off payment) and the tax code notice that came through on the 22nd November is them making the correction for this year. I guess they didn't want to wait until January 2020 because I had been slow for the previous two years.

But, are you saying that for next financial year I can probably just pay the additional tax in one go once I've done the self assessment?


Thanks again,

jra505

P.S. Whilst I think I followed all of what you said in your reply, I still do not understand why I paid £1070 in extra tax this month, because if I do the same in January, February and March then I will pay back more than £3103.60.

My pay date is the 15th of the month, rather than the first. Wonder if that has got any bearing on it?

Dazed_and_confused

Near the end of the tax return there are two questions under a general heading of "If you have not paid enough tax"

How did you answer the second question (If you owe tax on savings......)???

jra505

Dazed_and_confused wrote: »

Near the end of the tax return there are two questions under a general heading of "If you have not paid enough tax"

How did you answer the second question (If you owe tax on savings......)???

To be completely honest, I can't remember. I guess I chose unwisely...….

Any ideas about why at the current rate of £1070 I will end up paying back more than I apparently owe?

P.S. Yes, I just checked, on the form it asks you to put an X in the box if you do not want your tax to be collected through your wages, and I didn't. Mind you, it says "if you owe less than £3000", and I didn't think I would, so maybe that is why I didn't tick the box.

Dazed_and_confused

I'm at a bit of a loss as to why you think you are paying too much?

You owe approx £3,100 for the period 5 April 2018 to 22 November 2018

You owe approx £1,500 for the period 22 November 2018 to 5 April 2019.

So if anything paying an extra £1,070/month for 4 months isn't actually enough.

But it's all just an estimate anyhow, the main thing is you are paying more during the year so will have a smaller Self Assessment bill in January 2020.

You might want to wait for your 2019:20 tax code early next year before deciding how to approach that year (the code might be very similar but with the £20,978 entry removed). Depends a bit on how you opted to pay any tax due for 2027:18 - if that needs to be included it will obviously impact it to some degree.

Dazed_and_confused

P.S. Yes, I just checked, on the form it asks you to put an X in the box if you do not want your tax to be collected through your wages, and I didn't. Mind you, it says "if you owe less than £3000", and I didn't think I would, so maybe that is why I didn't tick the box.

The reference to £3,000 suggest you are reading the wrong question. That is asking about tax you owe for 2017:18, I meant the question about tax you might owe for 2018:19 (the current tax year).

jra505

Dazed_and_confused wrote: »

I'm at a bit of a loss as to why you think you are paying too much?

You owe approx £3,100 for the period 5 April 2018 to 22 November 2018

You owe approx £1,500 for the period 22 November 2018 to 5 April 2019.

So if anything paying an extra £1,070/month for 4 months isn't actually enough.

But it's all just an estimate anyhow, the main thing is you are paying more during the year so will have a smaller Self Assessment bill in January 2020.

You might want to wait for your 2019:20 tax code early next year before deciding how to approach that year (the code might be very similar but with the £20,978 entry removed). Depends a bit on how you opted to pay any tax due for 2027:18 - if that needs to be included it will obviously impact it to some degree.

Yes, you are absolutely right. I've still been thinking about the £3,100 as being the figure that I owe for the entirety of the year, but it's not, it's the amount by which I've under paid up until this point (well, the 22nd November), and they need to recover that plus make sure they get the right amount for the rest of the year.


Many thanks for your help, sorry if I've been a bit slow.


I must say, the tax code notice letter could be MUCH clearer.


jra505