Change to Personal Tax Allowance

71peyman71

Hi all.
Just wanted to see if anyone can clarify the complex personal tax situation for me. 

I have just received a letter from HMRC saying that they are changing my tax code to 500TX for the current financial year, which effectively means I owe them nearly 7K for the current year (£820 to date).

I have no idea how they have reached this conclusion as my income is nowhere near 100K and I pay nearly 40% of my salary into a pension. They can't possibly have taken this into account. I left my previous job in June and received redundancy pay and it looks like they are including that in the estimate.

On my HMRC personal page, I am not able to change this code, which means my January payslip will be significantly reduced. I waited nearly 40 minutes to speak to someone but gave up. 

Anyway, I thought they don't collect taxes owed until the next financial year once the total income, pensions contributions etc are finalised. Can anyone shed some light to suggst what I should do? Thanks

Dazed_and_C0nfused

What makes you think you might owe £7k?

You need to provide the full breakdown of the tax code for anyone to offer much meaningful help though.

500T could be a main tax code with reduced Personal Allowance.

But equally it could be the tax code for a second job/pension.

71peyman71

Dazed_and_C0nfused said:

What makes you think you might owe £7k?

You need to provide the full breakdown of the tax code for anyone to offer much meaningful help though.

500T could be a main tax code with reduced Personal Allowance.

But equally it could be the tax code for a second job/pension.

Because it the letter they sent me it says so. Apparently I will owe about £6900 in the current tax year which they will collect by reducing my personal allowance. 

Sometimes it seems that they just estimate without taking anything else, like pensions, into consideration. It doesn't add up. 

Dazed_and_C0nfused

71peyman71 said:

Dazed_and_C0nfused said:

What makes you think you might owe £7k?

You need to provide the full breakdown of the tax code for anyone to offer much meaningful help though.

500T could be a main tax code with reduced Personal Allowance.

But equally it could be the tax code for a second job/pension.

Because it the letter they sent me it says so. Apparently I will owe about £6900 in the current tax year which they will collect by reducing my personal allowance. 

Sometimes it seems that they just estimate without taking anything else, like pensions, into consideration. It doesn't add up. 

Are you sure it doesn't say they have estimated you owe £820 and they will collect that between now and 5 April by reducing your tax code allowances by £6,900?

You need to post more information about your (taxable) income in the current tax year and the full breakdown of the tax code really for more help to be forthcoming.

SiliconChip

Call HMRC first thing in the morning in order to get answered in the shortest time, lines open at 08:00 but I have sometimes found that calling a few minutes earlier works. Of course, staff are likely to be on leave at the moment so there may be greater delays than usual in answering, and once we get into January call volumes will increase as the tax return deadline at the end of the month approaches.

71peyman71

Dazed_and_C0nfused said:

71peyman71 said:

Dazed_and_C0nfused said:

What makes you think you might owe £7k?

You need to provide the full breakdown of the tax code for anyone to offer much meaningful help though.

500T could be a main tax code with reduced Personal Allowance.

But equally it could be the tax code for a second job/pension.

Because it the letter they sent me it says so. Apparently I will owe about £6900 in the current tax year which they will collect by reducing my personal allowance. 

Sometimes it seems that they just estimate without taking anything else, like pensions, into consideration. It doesn't add up. 

Are you sure it doesn't say they have estimated you owe £820 and they will collect that between now and 5 April by reducing your tax code allowances by £6,900?

Yes basically that's it. I don't understand how reducing by so much collects £820.
I also don't think they have taken into account my pension contributions. I have made sure I contribute enough to make me a basic-rate tax payer by some margin. 

sheramber

If your June pay included  a taxable  redundancy payment HMRC would assume that was your new monthly salry and act accordingly.

How are your pension payments paid? Do HMRC  know how much you are paying?

HMRC do adjust in year coding to collect potential underpayments.

Pennywise

Set up your online digital personal tax account and you'll be able to adjust your PAYE code yourself for other income, pension contributions,etc., which is better than HMRC having to guess what you're going to do.

71peyman71

Thanks. I have set up my personal tax account online. But there is no possibility of amending my tax code myself. I have tried but it doesn't seem possible. 

The letter also states that the tax free amount is as follows:
20% on the first £37700
40% on income between £37701 and 150000
45% on anything over £150000

I thought the higher rate tax starts at £50270, according to the gov.uk website. 

This is all very confusing.

71peyman71

sheramber said:

If your June pay included  a taxable  redundancy payment HMRC would assume that was your new monthly salry and act accordingly.

How are your pension payments paid? Do HMRC  know how much you are paying?

HMRC do adjust in year coding to collect potential underpayments.

I was recently paid out some shares from a company I worked for. Perhaps HMRC thinks that is a regular income? 

[Deleted User]

71peyman71 said:

Thanks. I have set up my personal tax account online. But there is no possibility of amending my tax code myself. I have tried but it doesn't seem possible. 

The letter also states that the tax free amount is as follows:
20% on the first £37700
40% on income between £37701 and 150000
45% on anything over £150000

I thought the higher rate tax starts at £50270, according to the gov.uk website. 

This is all very confusing.

It’s the tax free allowance of 12570. 

20% on the next £37700 which takes you to £50270.
40% on income 50270 to 100000.
Also 40% 101000 to 150000 but personal allowance lost on 1 for £2 basis until exhausted.
45% above £150000.