Tax Code

Banger696

I have just received my P60 from the DWP for my ESA (contribution based) and it says it is 1003L. I am in the support group and I have savings. Shouldn't my tax code be 1250L or am I not understanding the system correctly.

calcotti

Tax code is issued by HMRC. It will make no difference to the ESA anyway because it’s is never taxed at source. However if you think the code is wrong you should contact HMRC about it. The code 1003L suggests that HMRC think you have other sources of untaxed income.

Dazed_and_C0nfused

If your taxable income consists of ESA and savings interest then it is quite likely you will have a reduced tax code in use for the ESA.

That is because you won't be able to make use of the 0% tax rates available for interest.  Simply because you have insufficient income.  The Personal Allowance is always used first so if you have say taxable ESA of £7,000 and savings interest of £2,470 then your tax code would be 1003L.

This would be calculated as Personal Allowance £12,5000 less interest £2,470 = tax code allowances £10,030 = tax code 1003L.

This would only be wrong if your ESA was likely to be more than £10,030.

Banger696

Only interest on savings which is still under the threshold.

Dazed_and_C0nfused

What threshold?

Tax on interest works in a specific manner.

Firstly the Personal Allowance had to be used up so if your earned income (ESA, wages, pension etc) doesn't use it all then some of it will be used by the interest.

Once you have no spare Personal Allowance then the savings starter rate of tax may be available.  This is where upto £5,000 interest gets taxed at a 0% tax rate.
Note this is available on a sliding scale so if you have used up your Personal Allowance and paid tax on £5,000 of your earnings (ESA, wages, pension etc) then you do not get this rate band.

Finally there is the savings nil rate band (aka Personal Savings Allowance) where upto £1,000 of savings interest is taxed at 0%.

So for most people you need to have total taxable income of at least £17,501 before PSA is relevant to you.

I suspect you in the situation where you think you can earn £1,000 interest without paying tax on it but you aren't, you can earn £18,500 without paying tax on it and in your case you don't get past needing the Personal Allowance.

If your ESA is less than your tax code allowances of £10,030 then you won't be paying any tax on the ESA and your tax code is probably correct.  Really nothing to worry about.

But if you provide the actual breakdown of your tax code that would help be more certain.

Banger696

My ESA is £5600 but my interest doesn't go past £10000 when added in so that is what I meant by below the threshold. Not quite sure on amount of interest as it is paid monthly from several sources might need to work it out.

Dazed_and_C0nfused

In that case your tax code would normally be reduced because it is your Personal Allowance which means no tax is due on the interest, not the Personal Savings Allowance.

Banger696

Thanks, I emailed DWP who issued the P60, as yet no response but from what this thread says it's an HMRC thing any way.

calcotti

Banger696 said:

Thanks, I emailed DWP who issued the P60, as yet no response but from what this thread says it's an HMRC thing any way.

Yes, as said in the first reply it is HMRC that issue tax codes. DWP simply show the Tax Code they are told by HMRC.