Help with tax coding please..

C_Mababejive

Just resurrecting an older enquiry..

Why would HMRC issue a new tax code based on a pension contribution and one which gives me a large tax refund when all the TR i am entitled to would be in the 20% band and refunded via the SIPP provider anyway ? Is it just HMRC systems that are poor ??

The SIPP contribution was at such a gross level as to ensure all my income was in the 20% band

Dazed_and_confused

Because they believe some higher rate tax relief is due.

Have you checked your new tax code details on your Personal Tax Account on gov.uk? It may be something simple to do with the level of income HMRC expect you to receive in the current tax year.

Some things tend to be easy to predict, company pensions, annuities but wages and pension drawdown amounts can fluctuate a lot so you may need to update those amounts if they are not particularly accurate when compared to what you expect to receive in the current tax year.

The SIPP contribution was at such a gross level as to ensure all my income was in the 20% band

So some higher rate tax relief was due for last year?

C_Mababejive

Hmmm...i think there is something fundamental that im not understanding here.

Maybe i need to find and accountant who deals with tax.

Im not clear bout how i might be entitled to HR TR. I just paid what i thought was enough into a SIPP to increase my BR band..?

Dazed_and_confused

Im not clear bout how i might be entitled to HR TR. I just paid what i thought was enough into a SIPP to increase my BR band..?

Why did you make the contribution then?

For some people the whole point is that the contribution increases the basic rate band. As that in turn can reduce any higher rate tax payable. Which is the higher rate tax relief.

If you weren't liable to higher rate tax in the first place why were you interested in increasing your basic rate band

C_Mababejive

Dazed_and_confused wrote: »

Why did you make the contribution then?

For some people the whole point is that the contribution increases the basic rate band. As that in turn can reduce any higher rate tax payable. Which is the higher rate tax relief.

If you weren't liable to higher rate tax in the first place why were you interested in increasing your basic rate band

No,there is no doubt that i was up for some higher rate tax. I think im confusing two issues here. ie paying into a SIP to increase the BR band AND HR taqx on SIPP contributions.

1) I paid into a SIPP for two reasons, primarily to increase my basic rate band but also of course to enjoy the investment advantages of paying into a SIPP. I have a separate pension for my employment.

The act of paying into the SIPP increased my BR tax band thus reducing the amount of HR tax i paid to zero

The amount i paid into my SIPP ensured that no HR tax was paid on PAYE/dividends/savings etc.


The question is,as the starting point before paying into a SIPP was well into the HR tax bracket, am i still due some HR TR on my SIPP contribution..?

thanks

Dazed_and_confused

The question is,as the starting point before paying into a SIPP was well into the HR tax bracket, am i still due some HR TR on my SIPP contribution..?

You seem to be confusing yourself

Other than the basic rate tax relief the pension company adds to your contribution there is no specific pension tax relief.

You benefit by your basic rate tax band being increased and this reduces any higher rate tax payable. This saves you some tax and this is the higher rate tax relief.

The easiest way to see how this has benefited you is to look at your 2018:19 Self Assessment tax calculation and make a note of the tax due or tax overpaid i.e. the bottom line in the calculation.

Then start to amend your return by removing the pension contribution entries. Do not save the revised details, just look at the revised calculation and note the bottom line again.

Discard your changes.

Then compare your tax liability, the figure with the pension contributions and the one without. That is the tax saving your pension contribution has given you (over and above the basic rate tax relief the pension company added to your pension fund when you originally made the payment).

The revised tax code you originally referred to is a provisional adjustment for 2019:20 to allow tax relief for 2019:20, on the assumption you will make similar pension payments again. If that isn't the case then let HMRC know otherwise you could end up with an unnecessarily large Self Assessment bill for 2019:20.

The revised tax code for 2019:20 is not allowing tax relief in relation to 2018:19.

C_Mababejive

Dazed_and_confused wrote: »

You seem to be confusing yourself

Quite possibly..Thank again for taking the time to reply and i shall read closely. As someone who is new to SA, it can be difficult and i always say the only daft question is the one that isnt asked..!

C_Mababejive

Well ive just recently submitted my 2018-19 SA and yet again HMRC have sent me a recoding notice. How can they just pluck a figure out of thin air? Any sipp contributions i make in 2019-20 will go on my 2019-20 SA and then i will ensure that ive paid the right amount of PAYE tax. Why dont they just keep the two separate? I rang them at 08-05 this morning,got straight through and got them to reset it so i dont think it will affect payroll.

Dazed_and_confused

How can they just pluck a figure out of thin air?

They don't. The revised tax code is based on a combination of what you declared on your 2018:19 Self Assessment return and HMRC's estimate of what your job/pension income will be in 2019:20.

You would need to provide additional information if you want a explanation of the coding adjustment.

Why dont they just keep the two separate?

Because you haven't asked them to.

If you prefer to wait until you file your return to get any additional tax relief due then you can just ask HMRC to prevent this type of tax code adjustment each time you file a return.

Have a read of the HMRC Self Assessment manual page SAM121268

C_Mababejive

I'll have a read. For someone who isnt that expert at this kind of thing, i like to keep my PAYE separate,make sure that is all paid then deal ith the rest of it via end of year SA. It is a lot less confusing. I had thought the way to do it was to append a note at the end of the SA,,perhaps i missed it off ,i cant recall. If text is entered in that box,the system must surely prompt some human intervention ot read it..?