What is the impact of a non cumulative 'X' tax code, is it bad?

isayhello

I have had my tax code changed from 1257L to 1200 L X. I've been reading about tax codes and saw that the 'X' means its now a non cumulative tax code, if I keep working full time till the end of the tax year will there be any impact on me, will I have overpaid tax? Is it a bad thing to have the 'X' code?

I've not seen an exampe with some working out to see the real impact it will have on me, if someone could explain that would be very helpful, thanks.

penners324

Your monthly salary will be worked out on the basis of a tax allowance of £1,000 per month going forward. That's what it means.

chrisbur

HMRC have reduced your tax code so that each month from now on you will pay extra tax above what you would have paid on 1257L code.  If they had used a cumulative tax code the reduction would have been backdated to the beginning of the tax year and the first payment you had after the reduction would have included both the extra tax due to the reduction but also extra to backdate it to the start of the tax year.
As to the impact it has on you that will depend on why it has been reduced, have you had an advice of code change?

isayhello

chrisbur said:

HMRC have reduced your tax code so that each month from now on you will pay extra tax above what you would have paid on 1257L code.  If they had used a cumulative tax code the reduction would have been backdated to the beginning of the tax year and the first payment you had after the reduction would have included both the extra tax due to the reduction but also extra to backdate it to the start of the tax year.
As to the impact it has on you that will depend on why it has been reduced, have you had an advice of code change?

It was partly due to some benefits in kind from work and also a small amount of tax owed from the previous year. They seem to send an updated tax code every year during the year though, I was advised by a friend that this is because the value of the benefits in kind might change but surely it would be much easier to work this out at the start of the tax year and avoid changing it till the next year.

isayhello

penners324 said:

Your monthly salary will be worked out on the basis of a tax allowance of £1,000 per month going forward. That's what it means.

Thanks, just don't get why they switch to this monthly allowance than the cumulative one, wouldn't things work out the same in the end anyway?

molerat

isayhello said:

penners324 said:

Your monthly salary will be worked out on the basis of a tax allowance of £1,000 per month going forward. That's what it means.

Thanks, just don't get why they switch to this monthly allowance than the cumulative one, wouldn't things work out the same in the end anyway?

Yes it would work out the same at the end of the year but with a cumulative code it takes account of income and tax paid year to date and a reduction in code would take all the tax owed back to April in the first pay packet after the code was applied.  This way you pay that back in instalments over the rest of the year.

Dazed_and_C0nfused

isayhello said:

penners324 said:

Your monthly salary will be worked out on the basis of a tax allowance of £1,000 per month going forward. That's what it means.

Thanks, just don't get why they switch to this monthly allowance than the cumulative one, wouldn't things work out the same in the end anyway?

You are correct but I suspect in a minority.

Most people would probably prefer to pay the extra over the rest of the tax year not in one go next pay day.

And where would the cut off be, should £50 be paid in one go, £200, £500?

isayhello

Dazed_and_C0nfused said:

You are correct but I suspect in a minority.

Most people would probably prefer to pay the extra over the rest of the tax year not in one go next pay day.

And where would the cut off be, should £50 be paid in one go, £200, £500?

I think I'm missing the effect the cumulative version would have, so say if the allowance dropped by £1000, if it was the cumulative approach then how does that affect tax you've paid before?

if you've paid £1000 in tax already after say 6 months and earned £18000 then how does that reduction in allowance affect what you've paid since April? it would only affect your new earnings and still be spread out over each month right?

Dazed_and_C0nfused

A non cumulative code (signified by the X) is where the employer or pension payer is good to use the new code in isolation on every pay day from now on i.e. that week or months pay is calculated using the non cumulatibe code with no regard of what happened in previous week's or months.

A cumulative code is where the employer or pension payer will add the next week or months pay to what you have already received and calculate the tax due on the total (since 6 April).  Then knock off the tax that has already been paid and deduct the balance from that payment.  So if your tax code drops more than a point of two then you have to pay all the tax owed back to April all in one go on that payslip.

isayhello

Dazed_and_C0nfused said:

A non cumulative code (signified by the X) is where the employer or pension payer is good to use the new code in isolation on every pay day from now on i.e. that week or months pay is calculated using the non cumulatibe code with no regard of what happened in previous week's or months.

A cumulative code is where the employer or pension payer will add the next week or months pay to what you have already received and calculate the tax due on the total (since 6 April).  Then knock off the tax that has already been paid and deduct the balance from that payment.  So if your tax code drops more than a point of two then you have to pay all the tax owed back to April all in one go on that payslip.

Do you mean, if you're now in October and your code drops a few points, then if every month previously you were paying £100 in tax, it would be recalculated and now you might have to pay £120 in tax. So on your next payslip, all those previous months would have £20 added to them, and you'd pay an extra £120 for those 6 months in one go? whereas now you might be paying £130 per month for the next 6 months or something like that?

molerat

isayhello said:

Dazed_and_C0nfused said:

A non cumulative code (signified by the X) is where the employer or pension payer is good to use the new code in isolation on every pay day from now on i.e. that week or months pay is calculated using the non cumulatibe code with no regard of what happened in previous week's or months.

A cumulative code is where the employer or pension payer will add the next week or months pay to what you have already received and calculate the tax due on the total (since 6 April).  Then knock off the tax that has already been paid and deduct the balance from that payment.  So if your tax code drops more than a point of two then you have to pay all the tax owed back to April all in one go on that payslip.

Do you mean, if you're now in October and your code drops a few points, then if every month previously you were paying £100 in tax, it would be recalculated and now you might have to pay £120 in tax. So on your next payslip, all those previous months would have £20 added to them, and you'd pay an extra £120 for those 6 months in one go? whereas now you might be paying £130 per month for the next 6 months or something like that?

Yes, that is how it would work