Am I paying too much tax?

E11btt

I changed jobs in September. My previous gross annual salary was £101,350, post September it was £110,416. 

My usual tax code was always 1514L. This changed to 279T M1 in August, then 1144T M1 in September. I rang HMRC and said that my August pay had £500 extra tax paid, they said they would fix this and refund in next pay. I didnt get it in September either. The new job tax code in September was BR (no idea what that was), then in October it was K159 W1/M1. And now its changed to K24X.

Bearing in mind I have been calling HMRC from August onwards to provide them all the info on my new job start, new salary details and when I got my P45 I promptly sent to the new employees and also read out the info from the P45 to the HMRC staff on a call to update them.

In October I received joining bonus of £8000 on top of my first full pay cheque - gross £17,000 - but I was taxed almost £7,000 from that (so almost all of my bonus). I rang HMRC again, and although the initial response to my enquiry was apologetic, when the person put me on hold to look at my file, he came back and said nope all was good and actually I have been underpaying all year so this was to compensate for underpayment. I have been ringing HMRC every month since August and not one single person mentioned any underpayment before until I received my bonus. And they have now put me on the K24X tax code because apparently I still owe money. 

I am totally trusting HMRC but something just doesn't feel right. I calculated that I should have just over £6k as monthly net salary, and added to that my £8k bonus which I know is taxable, I should have at least got another £6k, instead I got net just over £10k (about £2k less). Am I missing something? 
To confuse matters more, the HMRC advisor said once they get the P60 they will be able to assess better and I may actually get some refund/relief if calculations go in my favour.

Thank you in advance for shedding any light on this please.

p00hsticks

You will have underpaid in September - the BR stands for Basic rate, so all your income will have been taxed at 20%, when at least some of it should have been at the higher rate. Another common reason for higher than usual tax being deducted shortly after changing jobs is if both old and new employers paid you in the same tax period, and so your monthly tax allowance was used twice, leading to an underpayment.

unholyangel

Further to the above, earning over 100k will reduce your personal allowance and your original code looks to have had at least 2500 of additional relief (private pension payments pehaps?) which may or may not be in the new code. 

This is probably the reason for the "underpaying all year" part of the conversation you had. You probably were previously receiving more or all of your personal allowance due to the lower salary. 

As someone who earns over 100k, you are probably going to underpay or overpay each year. Unless you can tell them at the start of the year exactly how much you're going to earn from each source. Bonuses that aren't paid at the end of the tax year can also skew things if you haven't provided an estimated of earnings to hmrc. For example if you'd been paid say 5 months salary of £9k per month then received salary + bonus, their systems will "estimate" your earnings as 62000 (6 months at 9k plus bonus) / 6 multiplied by 12 = 124k for the year when your actual earnings would be 116k (12 x 9k plus bonus). Providing an accurate estimate of your own should result in a recalculation and a new code being issued if it affects your liability. 

I would also stress it is your taxable income and benefits you need to take into account rather than salary (gross or otherwise). For example if you have a workplace pension which is deducted before tax, then you are not taxed on the pension contribution. There are other things which could affect it, but that is the one that most people would experience in my guesstimation. 

E11btt

I only have one job so that is my only source of income. I had one bonus in April from my previous company of £6000 and admittedly I didnt think I needed to let HMRC know (indeed I didnt even know I was getting it myself as the previous company didnt give fixed bonuses like my new company does). So not sure if that had skewed the figures. 

I have a workplace pension, at the moment only the employer is contributing (I believe its 10%) no there benefits except for a monthly allowance of £416 towards things like medical insurance and life insurance etc. My bonus is now fixed at 20% per year paid every December. 

Besides calling HMRC up in January to set the pay expectations for that year including bonus in December. What else can I do to reduce tax ?

unholyangel

E11btt said:

I only have one job so that is my only source of income. I had one bonus in April from my previous company of £6000 and admittedly I didnt think I needed to let HMRC know (indeed I didnt even know I was getting it myself as the previous company didnt give fixed bonuses like my new company does). So not sure if that had skewed the figures. 

I have a workplace pension, at the moment only the employer is contributing (I believe its 10%) no there benefits except for a monthly allowance of £416 towards things like medical insurance and life insurance etc. My bonus is now fixed at 20% per year paid every December. 

Besides calling HMRC up in January to set the pay expectations for that year including bonus in December. What else can I do to reduce tax ?

You can update your estimated earnings online via your tax account, if that's easier. Not sure when it's available though (ie whether it's available now or you'd have to wait until closer to the time). You can also use it to check after you receive your bonus payment to make sure they haven't changed your code because of the bonus. 

As for how to actually reduce the tax, try having a read of this to understand what makes up your taxable income (and therefore what can reduce it): https://www.gov.uk/guidance/adjusted-net-income

najan49

Since you’ve posted this in the “Cutting Tax” section you might want to consider that if you are able to sacrifice salary down to £100k via pension contributions you will save 62% tax this year, 63.25% after April.