Self-employed but getting a lump sum via PAYE - HMRC have bumped my tax code

londoner2019

Hello all - this is all rather confusing and convoluted but I'm hoping someone can help.

Earlier this year I moved from a PAYE temp contract to a self-employed freelance contract (I am doing exactly the same work - long story)

I am getting a monthly lump sum as per my freelance contract, which I will then feed through the self assessment tax return form after the end of the 2023/24 tax year.

I have been paid two lump sums which was owed to me from my old agency, where they have set me up to pay through PAYE (and then they'll give me a P45 after it's gone through).

The first lump sum came through fine, and the second is due next week. But HMRC have taken one look at that and are assuming I'm being paid an extortionate rate, and have automatically changed my tax code. 

What do I need to do to ensure that next week's lump sum isn't entirely taken by HMRC through income tax etc? Happy to provide any other details.

Dazed_and_C0nfused

If the agency has already issued you with a P45 then they should use tax code 0T on any later payments (after leaving).

If they haven't them why wouldn't they use whatever tax code HMRC have issued?

You can change it via your Personal Tax Account if you believe it is in some way wrong.

[Deleted User]

HMRC will assume that you are getting the lump sum amount every month - how are they to know any differently? 

You can access your personal tax account and alter the income expected from that source of income in whole of this tax year to the correct amount. 

londoner2019

[Deleted User] said:

HMRC will assume that you are getting the lump sum amount every month - how are they to know any differently? 

You can access your personal tax account and alter the income expected from that source of income in whole of this tax year to the correct amount. 

Thanks for this - you're totally right! I've popped an update into my HMRC account with my estimated income (I know exactly what it will be) so it should revert. 

londoner2019

Dazed_and_C0nfused said:

If the agency has already issued you with a P45 then they should use tax code 0T on any later payments (after leaving).

If they haven't them why wouldn't they use whatever tax code HMRC have issued?

You can change it via your Personal Tax Account if you believe it is in some way wrong.

Thanks for the quick response. I'm not sure what the agency will do as it was an HMRC notification telling me about the new tax code, not them. 

Thanks for the advice, I've updated my personal tax account and that should rectify things.

[Deleted User]

londoner2019 said:

[Deleted User] said:

HMRC will assume that you are getting the lump sum amount every month - how are they to know any differently? 

You can access your personal tax account and alter the income expected from that source of income in whole of this tax year to the correct amount. 

Thanks for this - you're totally right! I've popped an update into my HMRC account with my estimated income (I know exactly what it will be) so it should revert. 

Yes - just be cognisant that HMRC may repeat the process when the second payment goes through. 

MalMonroe

Hi, and then when you start filling in and submitting your self-assessment forms, things should even out. I'm newly self-employed and although I was eager to submit a self-assessment in January (in order not to do it wrong/end up in some kind of bother), HMRC have told me not to do anything until next January. My income isn't enormous by any means but I'll have to pay some tax. I'm putting it into my savings account.

The personal online tax accounts are great, I find. All the information you need for both personal and business accounts in one package. 

Also in my experience, HMRC don't always get things right so it's handy to be able to check codes, etc and send them messages. 

All the best in your new venture!   

londoner2019

Agreed. I'm always very keen to begin tax returns as soon as the tax year ends in April, even though I have until the following January. It's a good idea to hold on to the pot of funds for tax right until you need to pay it so that you can maximise any interest earned.

Good luck with everything!