adjustment to rate band

Surveyor123

Good morning, some clarity sought...i have had a rate band adjustment which I cannot understand how it is arrived at. I have 3 sources of income (all figures rounded to nearest 000), one fulltime employment and 2 from pensions...total income is circa currently at £56000. Fulltime employ is £40000(it is due to increase after 4 months of furlough to £57000), pensions are £11000 and £5000. My fulltime employ tax code has 'nosedived' to 119LX from 674L, the higher pension tax code has gone from D0 to BRX (20%, was D0)...the other one remains at D0. The rate band adjustment to my fulltime employ is £5700...where has that come from??
Grateful for any clear explanation.

Dazed_and_C0nfused

It is needed because you are a higher rate payer overall but you aren't earning enough to pay higher rate tax at your main job and as such HMRC would be making your pension payer (the £11k one) deduct too much tax if it was all taxed at 40%.

The £5,700 adjustment will ensure you pay (in a full year) an additional £1,140 tax on your employment.

It can only ever be an estimate.

When your taxable salary changes you could update this on your Personal Tax Account and this should prompt HMRC to review your tax codes again.  Don't forget for the current tax year it won't be £57k though, it will x months at £40k plus x months at £57k.

Gunner835

I`m also confused by the rate band adjustment levied on my account. Like Surveyor123 i have a job (pay £39500pa, tax code K117) and pensions of £20k pa (code BR) and £1k pa (code BR) i pay £1k per month to an AVC to try to offset 40% tax and apparently owe £941 from tax year 2017/18. My tax free amount is -£1183 and have adjustment to rate band of £9443. My estimated tax bill for the current year is £12852 which seems high. i appreciate  my code will be adjusted to repay the £941 but why dont i get any tax free amount? Tax office tried to explain it but it was as clear as mud and i dont think they knew why tbh!!
The previous answer suggests if you dont earn enough to pay 40% at the main job it confuses the system if overall you do earn enough. Can anyone please explain to me? Thanks in advance

Dazed_and_C0nfused

I don't think it confuses the system I think it just makes your tax codes more complicated.

Is the £39,500 the amount which will be shown on your P60 as taxable pay?

Do you have any company benefits such as car or medical insurance?

What method of pension contribution do you use to contribute to the AVC, net pay or relief at source?

Gunner835

P60 to April 2020 shows pay as £37,495.
No car /medical benefits. AVC paid direct from pay before tax applied (so im told!)
Thanks

Dazed_and_C0nfused

So is £39,500 the amount you expect to see on your P60 for this tax year?

And your tax code figures don't add up.

How exactly is the K117 arrived at.  Are there any additions to your Personal Allowance and heat other deductions are there apart from the adjustment to rate band of £9,443.

If you can provide that info I can check how accurate the code is.

Gunner835

to clarify the £37,495 was pay plus  £7500 tax deducted

Dazed_and_C0nfused

Gunner835 said:

to clarify the £37,495 was pay plus  £7500 tax deducted

What you were paid in the 2019:20 tax year isn't relevant to 2020:21.  

Anyway I have shown some calculations below suggesting you may be paying a little too much tax but that doesn't take into account the information missing from the breakdown of your tax code so will not be fully correct.  It also assumes that all 3 tax codes are used on a cumulative basis throughout the year.

Job £39,500

Pension1 £20,000

Pension2 £1,000

Taxable Income £60,500

Less £12,500 Personal Allowance

Income that needs to be taxed £48,000

£37,500 x 20% = £7,500

£10,500 x 40% = £4,200

Total tax due = £11,700

Plus underpaid tax £941

Total tax due £12,641

K117 on £39,500 deducts £8,771.60

BR on £20,000 deducts £4,000.00

BR on £1,000 deducts £200.00

Total tax deducted £12,971.60

Gunner835

Thanks for this. The gov.uk website thinks i will earn £39500 this current tax year . Additions are: pers allowance £12500, early years rate adjustment £17 +£312(both relief for WFH) flat rate job expenses £140, Deductions are £4709 underpayment and rate band adj of £9443 totals £14152 meaning i get a tax free amount of -£1183.
should the £48000 to be taxed  be less £12000 paid at source to the AVC?  i did this specifically to try to reduce the need to pay 40% tax rate.
sorry but i still dont get the application of the adjustment 

Dazed_and_C0nfused

The revised figures would be,

Job £39,500

Pension1 £20,000

Pension2 £1,000

Taxable Income £60,500
Less various expenses £469

Less £12,500 Personal Allowance

Income that needs to be taxed £47,531

£37,500 x 20% = £7,500.00

£10,031 x 40% = £4,012.40

Total tax due = £11,512.40

Plus underpaid tax £941

Total tax due £12,453.40

K117 on £39,500 deducts £8,771.60

BR on £20,000 deducts £4,000.00

BR on £1,000 deducts £200.00

Total tax deducted £12,971.60

All of the above will change depending on what your actual income is from each job/pension

Dazed_and_C0nfused

The adjustment to rate band is simply a mechanism to ensure you pay the extra tax due as a result of you being liable to higher rate tax overall but not having a single source of income liable at higher rate.

It can only ever be an estimate (as all tax codes are really) but is intended to try and ensure the correct amount of tax is deducted during the year.