Tax Code Allocation with 2 Incomes.

Deepee74

I have 2 Incomes, 1 Military Pension and Earnings from my Current Employment. Currently because my Pension falls below the Tax allowance of £12500 I have asked the Tax office to simply apply Base Rate Income Tax to this (20%) and to apply my variable tax code (1250L) to my Earnings.  In the last 2 years the tax office has been unable to calculate my Tax correctly and always end up with a dept at the end of the tax year and a random tax code.

I would Like to understand whats the best way to apply my tax allowance, to my Pension or to my Employment earnings?

oldbikebloke

if the gross earnings in the job and the gross pension are each more than 12,500 (ie your combined gross is > 25k / yr ) then it does not matter where you put the allowance (code)

if on the other hand one of them is less than 12,500 gross, then split the code between pension and job so that you get a bit of tax free in both but avoid overpaying on one and having used allowance on the other 

those are the only 2 possible permutations of 2 jobs and how to deal with a code  

Dazed_and_C0nfused

Deepee74 said:

I have 2 Incomes, 1 Military Pension and Earnings from my Current Employment. Currently because my Pension falls below the Tax allowance of £12500 I have asked the Tax office to simply apply Base Rate Income Tax to this (20%) and to apply my variable tax code (1250L) to my Earnings.  In the last 2 years the tax office has been unable to calculate my Tax correctly and always end up with a dept at the end of the tax year and a random tax code.

I would Like to understand whats the best way to apply my tax allowance, to my Pension or to my Employment earnings?

You haven't actually said what he tax codes are or how much each source of income is each year.  That would be useful in working out what is the best way forward.

Deepee74

Thank you, Originally the Tax office wanted to apply the Same Tax code to Both which would have been catastrophic.  The Pension is below the £12500 limit and currently has no tax relief, its all against the earnings.

Thank you Again.

Dazed_and_C0nfused

The way you are explaining things suggests you should get a refund each year not owe extra tax.

Without a bit more detail (tax is all about the detail  ) it's difficult to know exactly what's going wrong.

unholyangel

Your tax isn't actually calculated until the end of the year. Until then, they're simply collecting tax periodically using guesstimates. Unfortunately this requires that the input is exactly correct, in order to achieve the correct output. 

Until you can give details of how much you'll earn from each source and which tax codes they've been allocated, posters here are going to struggle to help you. They're trying to, but they need that info. 

If you have one income that's static and never varies then it's best (imo) to set that as your main source. This is likely to be your pension. If your pension increases yearly, you will need to factor that in and provide accurate estimates to hmrc each year. You can then have any unused allowance (if pension is less than your balance of allowances) transferred to the variable source. 

unholyangel

Dazed_and_C0nfused said:

The way you are explaining things suggests you should get a refund each year not owe extra tax.

Without a bit more detail (tax is all about the detail  ) it's difficult to know exactly what's going wrong.

Only thing I can think of is wrong estimated pay for one or both sources and collectively they're taking him into higher rate? 

badmemory

The better way to apply your tax allowance is to put as much as possible against your pension, leaving a small amount of tax to pay on it, and the remainder against your employed income.  The reasoning is that your pension income is never going to stop, whilst your employment may.  This leaves a lot less to sort out especially if the reason is ill health, when you have enough to worry about without having to sort tax!

sheramber

 I you tell us your total income for the year then someone can tell you  whether basic rate charged on your pension is correct. It sounds as if it is not.