Tax code change

Dazed_and_confused

The increased tax code benefits a baisc rate taxpayer by £24 (assuming they are paying at least that much tax to start with!).

There are 12 monthly pay periods in a tax year so £24 divided by 12 = £2/month.

£16 now for the first 8 months of the tax year (£2 x 8 = £16). £2/month for the remaining 4 months of the tax year (£2 x 4 = £8).

£16 + £8 = £24.

It might be simplest just tell us your expected taxable salary (the amount which will be shown on your P60).

People regularly get confused with the standard threshold for higher rate tax and believe it is much less than it actually is. You may have fallen into this trap?

Dazed_and_confused

There is really no "threshold" for savings interest. Unless it is tax exempt like interest from an ISA is then it is taxable income.

Albeit some is likely to be taxed at one of the 0% tax rates.

noclaf

My gross salary is £55k. My paye in Oct19 pay with a 1238L tax code was £647 whilst for Nov19 pays with 1250L tax code it's £630. So reduced by £17. I won't be buying a yacht anytime soon but it's still something right and all counts

Dazed_and_confused

Gross salary is usually irrelevant for tax purposes.

Taxable pay is what matters and tax of £647 suggest your taxable pay that month was about £4,215. Which is only just over £50k on an annual basis. Based on the tax adjustment you are now earning just under the standard higher rate threshold.

Being in a net pay pension scheme or agreeing to a lower taxable salary in return for your employer contributing to a pension (salary sacrifice) are both common reasons why taxable pay/salary can be much less than gross salary.

chrisbur

In order to get a tax paid figure of £647 on code 1238L but not to have paid any 40% tax you would need a taxable pay figure of about £4268 a month at the moment; but that figure had to have been a bit lower in the past so that the cumulative taxable pay to date was still under the 40% threshold.
If the OP can give taxable pay to date from last payslip this will clarify.

noclaf

I am in a pension scheme so 8% of monthly pre-tax salary goes into my employer pension scheme. 8% doesn't sound much but it's a sizeable chunk and I wonder if that's lowering my tax liability into the basic threshold or is that not how it works?

Dazed_and_confused

£55k salary less 8% pension contribution (net pay or salary sacrifice) means £50.6k taxable pay. Which would put you into the higher rate bracket if you'd been getting that every single month from April till now.

But I suspect you haven't.

noclaf

Dazed_and_confused wrote: »

£55k salary less 8% pension contribution (net pay or salary sacrifice) means £50.6k taxable pay. Which would put you into the higher rate bracket if you'd been getting that every single month from April till now.

But I suspect you haven't.

You are correct...I 'was' a basic rate tax payer upto August pay. Ok now this makes sense about the basic tax rate part. Thanks for the help on this!
On my previous salary I was definately in the basic rate band due to my pension but now I am just above as you correctly calculated above.

unholyangel

noclaf wrote: »

Regarding the 6 month ref: For my April to September payslips 1238L was used as the tax code. HMRC's notification states that the revised tax code of 1250L is applicable from April 2019 onwards. So I am trying to understand how my employer will now reflect the tax code change for April to September because based on the HMRC notification I've been overtaxed for those 6 months unless I am confused on how this works and it's completely possible lol.
I am a higher rate tax payer if that makes a difference here.

I've skipped the last few posts so apologies to D&C if he/she already covered this but I'll tell you how tax is calculated and hopefully that clears it up.

So on a cumulative code if you are paid monthly, then you accumulate 1/12th of your personal allowance each month. For a code of 1250L, your employer will assume an amount of 12509.16. So each month, you get £1042.43 of personal allowance and it adds up. So month 2 you have £2084.86 and so forth. To calculate how much tax is due, they compare your accumulated earnings to your accumulated allowance.

So if you earn 1200 in M1, you'd pay £31.40. If in month 2 you only earn £800, your accumulated earnings are £2000 but your accumulated allowance is £2084.86 so that £31.40 you previously paid is refunded to you.

Previously, your accumulated allowance would have been 12389.16/12*month number (so in month 8 it is £8259.44) where now, its 12509.16/12*month number (so in month 8 £8339.44).

So thats an extra £80 that was previously taxed at 20% that can now be 0%. 80*20%= £16.

chrisbur

Still cannot quite understand these figures.
Salary at the moment is 55000 which gives 4583.33 a month.
8% of that is 366.67 so taxable salary is 4216.67
OP advises that "My paye in Oct19 pay with a 1238L tax code was £647"
Freepay for 1238L for one month would be about 1032
Taxable pay of 4216.67 less 1032.00 is about 3184
Tax on 3184 is 636.80 or thereabouts not £647

Or was the £647 a mistype for £637?
Or are my maths wrong somewhere?