Unexpected bonus triggered K tax code, how do I calculate the impact?

GazzaBloom

I received a notification from HMRC of a tac code change to a K code. I am trying to calculate the impact this will have on my January monthly pay but struggling! I have tried entering details into the online Salary Calculator but the results don't look right to me as it suggests I will take home more under the new code.

Can anyone help?

Year 2020/21 - my tax code was 1122L and the new code is K906X.
Info from my HMRC

Your tax-free amount

The income you can have, taking into account any adjustments, before paying tax.

The amount is −£9,071

Estimated tax you owe

This section is Your PAYE Income Tax calculation

We estimate that you have not paid enough Income Tax so far this tax year. You currently owe

£1,664.80

How this will be collected

We will start to collect this amount straight away.

To do this we have reduced your tax-free amount by £14,748. This means that you will pay more tax until 5 April 2021, so that we can collect the £1,664.80 owed. 

Your tax code has been adjusted for this.

One another screen is says: Estimated tax you owe this year

We estimate you have underpaid £2,949.00 tax

I'm very confused! do I need to call HMRC? Any help would be appreciated

Dazed_and_C0nfused

You can use this calculator, it is very straightforward, you need to put in that it is non cumulative (week1/month1) next pay day.

http://payecalculator.hmrc.gov.uk/PAYE0.aspx

It sounds like they calculate you owe £2949 but are splitting it £1664 this year and the balance next tax year?

You now have an effective tax rate of 60% on some income so extra pension contributions may mitigate it.  You want to Google "adjusted net income" and understand that first though.

GazzaBloom

Dazed_and_C0nfused said:

You can use this calculator, it is very straightforward, you need to put in that it is non cumulative (week1/month1) next pay day.

http://payecalculator.hmrc.gov.uk/PAYE0.aspx

It sounds like they calculate you owe £2949 but are splitting it £1664 this year and the balance next tax year?

You now have an effective tax rate of 60% on some income so extra pension contributions may mitigate it.  You want to Google "adjusted net income" and understand that first though.

I tried the tax calculator you linked but it errore out, the  I set week 1/month 1 it asks for the salary and tax amounts to be set to zero for some reason.

Dazed_and_C0nfused

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

GazzaBloom

Dazed_and_C0nfused said:

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

Got it, working now, many thanks! I need a drink now I've seen it..."we'll be on beans and rice in February Martha"

Barny1979

GazzaBloom said:

Dazed_and_C0nfused said:

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

Got it, working now, many thanks! I need a drink now I've seen it..."we'll be on beans and rice in February Martha"

You need to reassess your budgets if you're skint on a 6 figure salary.

p00hsticks

Barny1979 said:

GazzaBloom said:

Dazed_and_C0nfused said:

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

Got it, working now, many thanks! I need a drink now I've seen it..."we'll be on beans and rice in February Martha"

You need to reassess your budgets if you're skint on a 6 figure salary.

... especially when the cause of the code change was an 'unexpected bonus'....

GazzaBloom

p00hsticks said:

Barny1979 said:

GazzaBloom said:

Dazed_and_C0nfused said:

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

Got it, working now, many thanks! I need a drink now I've seen it..."we'll be on beans and rice in February Martha"

You need to reassess your budgets if you're skint on a 6 figure salary.

... especially when the cause of the code change was an 'unexpected bonus'....

Cheer up...I was attempting to be humorous...not something that seems to work well on this forum I know.

unholyangel

Check your pay figure is correct on your tax code notice. 

If a bonus has changed your code then it sounds like you hadn't provided a figure and they're guesstimating based on year to date figures. Which will likely give an incorrect result, due to the bonus.

For example, salary of 60k and 35k bonus paid in month 8 would give 75k paid in month 8 with average earnings to date of 9375 and a prediction of 112500 for the year. This would result in a reduction of your personal allowance by 6250 and the system thinking you'll underpay when actually, you'd be earning 95k and therefore not lose any personal allowance nor be underpaid. 

The above is a simplification. It can be affected by other income, pension contributions etc.  It was just to demonstrate you should check, to ensure its correct. 

GazzaBloom

unholyangel said:

Check your pay figure is correct on your tax code notice. 

If a bonus has changed your code then it sounds like you hadn't provided a figure and they're guesstimating based on year to date figures. Which will likely give an incorrect result, due to the bonus.

For example, salary of 60k and 35k bonus paid in month 8 would give 75k paid in month 8 with average earnings to date of 9375 and a prediction of 112500 for the year. This would result in a reduction of your personal allowance by 6250 and the system thinking you'll underpay when actually, you'd be earning 95k and therefore not lose any personal allowance nor be underpaid. 

The above is a simplification. It can be affected by other income, pension contributions etc.  It was just to demonstrate you should check, to ensure its correct. 

Thanks - I'll check their numbers.

csgohan4

Barny1979 said:

GazzaBloom said:

Dazed_and_C0nfused said:

You should only complete these sections and it will work just fine.  Previous earnings/tax are irrelevant as you are now on a non cumulative tax code.

Year 2020/21 - my tax code was 1122L and the new code is K906X

Employee Tax Code*  

Is the period of pay *  

Is the period of pay on a week 1 or month 1 basis?*  

Gross pay for the week or month

Payment date

Got it, working now, many thanks! I need a drink now I've seen it..."we'll be on beans and rice in February Martha"

You need to reassess your budgets if you're skint on a 6 figure salary.

Sadly it does happen, if your in a partnership for example, your drawings maybe lower than your profits or a pensions operator, say Defined benefits from the NHS, ask for more pension as they have calculated you need to pay more, suddenly leaving you with a 50k bill. 

It isn't always due to spending habits