K codes and staying under the 50k taxable income limit

artyboy

Hi all - first post on this board and I'm not sure if it's a dumb question or not so please bear with me.

I recently took VR and have just got my P45 which states that my total taxable pay for this tax year to date is just over £50k. It's quite possible/likely that I won't be working again until after April 2024, and if that's the case, I'll want to make a further payment into my pension to take advantage of the HR tax relief, plus also get me the additional £500 savings allowance.

My question is, I have a K385 tax code due to prior year underpayment. Does that in any way shift the way that the £50k threshold is calculated for the savings tax allowance? I know that I'll be paying more tax than normal within that £50k, but I just want to check that the K code doesn't notionally add extra taxable income to that £50k.

Hope that makes sense, thanks for any help,

Arty

Dazed_and_C0nfused

Your taxable income is key (even if taxed at 0% like some interest and dividend can be) but an underpayment isn't relevant.

The K code could have several elements, some of which might be relevant but the underpayment isn't one of them.

artyboy

Thanks and that's an interesting point - part of the reason I have a K code (or at least such a 'big' K code) is because in prior tax years, my earnings were high enough to wipe out my personal allowance, and HMRC will have assumed that's also going to be the case this year.

So if I understand right, I would only get the higher £1000 savings tax allowance if I brought my taxable earnings to below the point where any HR tax is due. With a K code, that threshold is going to be a long way under £50k. However that will then also be incorrect as I may have had my personal allowance incorrectly zero'd out for this year.

Frankly this sounds like a messy one to try and work out at what taxable income level I 'should' start paying 40% tax on...

audaparizeau

Hi all - first post on this board and I'm not sure if it's a dumb question or not so please bear with me.

I recently took VR and have just got my P45 which states that my total taxable pay for this tax year to date is just over £50k. It's quite possible/likely that I won't be working again until after April 2024, and if that's the case, I'll want to make a further payment into my pension to take advantage of the HR tax relief, plus also get me the additional £500 savings allowance.

My question is, I have a K385 tax code due to prior year underpayment. Does that in any way shift the way that the £50k threshold is calculated for the savings tax allowance? I know that I'll be paying more tax than normal within that £50k, but I just want to check that the K code doesn't notionally add extra taxable income to that £50k.

Hope that makes sense, thanks for any help,

Arty

It's great that you're thinking about maximizing your pension contributions and taking advantage of tax relief. Regarding your question, the K385 tax code for prior year underpayment doesn't directly affect the calculation of the £50k threshold for the savings tax allowance. However, it's important to note that any additional tax you owe due to the underpayment might reduce the amount available for pension contributions

Jeremy535897

It's not difficult to work out when you will pay higher rate tax. It is when your adjusted net income reaches £50,270 (in England and Wales). Your code has no bearing on the ultimate liability, although you might find that too much tax is collected and you need to seek a refund. It may be worthwhile seeking an adjustment to the code.

artyboy

Jeremy535897 said:

It's not difficult to work out when you will pay higher rate tax. It is when your adjusted net income reaches £50,270 (in England and Wales). Your code has no bearing on the ultimate liability, although you might find that too much tax is collected and you need to seek a refund. It may be worthwhile seeking an adjustment to the code.

Well I was thinking about doing that because as things stand, if I have no more taxable income this year, I will already have overpaid nearly £7k in income tax.

If I don't work again before April 2024, then I should regain my full personal allowance, less the impact of the negative K code - so yes, I can figure out what my threshold for HR tax is. Good job that the pension AA increased as I'm already over 40k for this year!