Query re tax code/tax underpayment

Marmot

Hi, I’ve recently changed jobs and I’ve had a tax coding notice from the HMRC but I’m a bit confused by it so I’m wondering if someone on here can help….

Bit of background:

In my new job I have taken a cut in salary (to join an employer who provides a DB pension scheme).

In my previous role the company had a salary sacrifice DC pension and I was salary sacrificing a largish amount each month.

I left my old employer mid-June.  My month 12 payslip for 21/22 with them shows my Gross for Tax as £37,699 and I had the tax code 1288L.  My last payslip with them for 22/23 has my Gross for Tax as £7,882 and a tax code of 1257L.

This tax code difference between these 2 tax years might be irrelevant because we’re into a new tax year now but I’m not entirely sure why it happened so I’ve asked my old employer to clarify (it might be something to do with a change to how a private medical scheme was factored into my allowances/benefits).

I started at my new employer straight after leaving the old one in mid-June.  My annual salary for that role is £35,395.

I’ve had one payslip so far from the new employer, it was for part of a month & that shows a Gross Taxable to Date of £1815, this is my gross salary minus the pension contribution.  And my tax code on the new employers payslip is 1257L.

Sorry alot of info there!

Anyway, I’ve had a coding letter from HMRC saying my code must change to 1118L. and says I owe tax of £209.60.

Does anyone understand how in going to a lower salary and staying on the same tax code I’ve managed to not pay enough tax?  I’d understand it if I went from a lower salary to a higher one but I can’t understand it this way around.

Many thanks for any guidance anyone can provide!

Marmot

Dazed_and_C0nfused

It's almost certainly the result of you having two jobs at the same time (for tax purposes).

The new tax code apply for the rest of this tax year then, assuming no other changes are needed, return to 1257L from 6 April 2023.

The tax code change is likely to have been removal of Covid-19 WFH allowance (1288 to 1257 is a 31 point drop = £312 WFH allowance).

Marmot

Thank you, that makes sense re the code change, the WFH allowance!

Ah ok I didn't realise that for tax purposes I had 2 jobs at the same time in June.

Thanks for the help

Dazed_and_C0nfused

Marmot said:

Thank you, that makes sense re the code change, the WFH allowance!

Ah ok I didn't realise that for tax purposes I had 2 jobs at the same time in June.

Thanks for the help

The info in your post suggests you were paid by job 1 in the tax month to 5 July so you would have received your tax code allowances on that payslip.

Then your new company paid you in the same tax month without having your P45 details.  So they used the emergency tax code (1257L) on a non cumulative basis which allowed you another months tax allowances when you had already used them on your first payslip that month.

Assuming you signed/ticked statement B on a new starter declaration this was correct, not a mistake by your employer.

So you received an extra month's tax code allowances in the month to 5 July.

£12579 / 12 = £1048

£1,048 x 20% = £209.60 tax owed 

molerat

Marmot said:

Anyway, I’ve had a coding letter from HMRC saying my code must change to 1118L. and says I owe tax of £209.60.

Is the code 1118L or 1118LX ?

A drop of 139 points will collect £278 additional tax on a cumulative code but a non cumulative will collect £208 over the next 9 months.

Marmot

molerat said:

Marmot said:

Anyway, I’ve had a coding letter from HMRC saying my code must change to 1118L. and says I owe tax of £209.60.

Is the code 1118L or 1118LX ?

A drop of 139 points will collect £278 additional tax on a cumulative code but a non cumulative will collect £208 over the next 9 months.

It's 1118LX and the back of the notice says that the X means they will review the tax I've paid after 5 April.

Thanks everyone I kind of understand it now!  :-)

molerat

Marmot said:

molerat said:

Marmot said:

Anyway, I’ve had a coding letter from HMRC saying my code must change to 1118L. and says I owe tax of £209.60.

Is the code 1118L or 1118LX ?

A drop of 139 points will collect £278 additional tax on a cumulative code but a non cumulative will collect £208 over the next 9 months.

It's 1118LX and the back of the notice says that the X means they will review the tax I've paid after 5 April.

Thanks everyone I kind of understand it now!  :-)

The X actually means they tax each month stand alone without taking the rest of the year into account.  Not usually a problem but if you get a big bonus one month it could be overtaxed wrt the whole year.