Q-Income tax,owed tax and pension TR

C_Mababejive

My situation is that i owe tax from the previous tax year. Its below the 3k limit so i opted to pay it back from 6/4/19 to april 2020 via a tax code adjustment.

In the tax year 2019-2020 i will be a higher rate tax payer. I always try to pay a sum into my private SIPP to lower my overall tax band to the basic limit.

How will the fact that my tax code is being adjusted to pay back a previous years tax owning affect me?

Will it make my situation better,worse or the same?

Would i have been better off just paying off the amount owning as a lump sum payment rather than carrying it over??

tnx

00ec25

surely as a higher rate taxpayer you are capable of understanding the basics and the impact a code has?

https://www.gov.uk/tax-codes

https://www.which.co.uk/money/tax/income-tax/tax-codes-and-paye/understand-your-tax-code-a19qm0w5wjxp

https://keyportfolio.co.com/tax-codes-made-easy/1185l

Dazed_and_confused

It usually depends on how much your income will be at the job/pension which the tax code is being used against.

If that is expected to be basic rate and your tax owed was say £2,000 then your tax code adjustment might be 10,000. Which would result in your employer/pension payer deducting an additional £2,000 towards paying off the tax owed (10,000 x 20% = 2,000)

But if you are going to be paying plenty of higher rate tax then the adjustment might be just 5,000 (5,000 x 40% = £2,000).

The crucial thing to remember is that you haven't paid the tax you owed for 2017:18. HMRC are effectively giving you an interest free loan, the expectation being that your employer/pension payer will deduct additional tax to pay the tax owed as a result of the reduced tax code for 2019:20.

So when you come to complete your 2019:20 tax return the tax owed will be added to the tax calculation for that year. This does not mean you are paying it again. Because you chose not to pay it in the first place. Your calculation will also include the tax from your employer or pension payers P60 which will in theory be £2,000 more than it would otherwise be - because of the adjustment to collect the tax owed. But a tax code is only a provisional attempt to collect the correct amount of tax.

It may be the adjustment doesn't collect sufficient tax. It might be that it results in more than £2,000 (using my example) being collected. Ultimately it will all be resolved when you complete your 2019:20 Self Assessment return.

It could be argued that this is making your tax affairs slightly more complicated but that is the price you are paying for opting not to pay your tax bill at the normal time. Nothing wrong with that as such, it has always been an option with Self Assessment, providing you understand exactly how it works.

C_Mababejive

00ec25 wrote: »

surely as a higher rate taxpayer you are capable of understanding the basics and the impact a code has?

https://www.gov.uk/tax-codes

https://www.which.co.uk/money/tax/income-tax/tax-codes-and-paye/understand-your-tax-code-a19qm0w5wjxp

https://keyportfolio.co.com/tax-codes-made-easy/1185l

No,im not very good at sums..

C_Mababejive

Thanks D&C,,ill have a good read of that . Maybe in the long run it would be simpler just to pay it as and when its due to save complication as this is likely to be an ongoing thing for some years...

Dazed_and_confused

It does keep things simpler.

But you would have parted with a chunk of money a few weeks ago which is still sat in your bank account at the moment.