Tax code confusion on what it actually means

curtis122

I submitted my tax return last month, I work through an umbrella company as a contractor, they have to take what HMRC tell them for the code as I've contacted them before to query a code. I have a rental, I declared everything as normal. I had dividends which I declared and I paid a chunk into my Sipp which I entered also.  At the end it worked out I was owed approx £300 back in tax.

I've just been paid and my tax code has changed to K547X. I have no idea what this means. I was put on this code K and X last year also and rung HMRC up and had lots of umms and arrghs then got told it will sort itself out so was not much help, they seemed to struggle to see anything other than telling me what the HMRC page states which is "Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance." The X means emergency code. Further reading on K states - For most people, this happens when you’re:

• paying tax you owe from a previous year through your wages or pension
• getting benefits you need to pay tax on - these can be state benefits or company benefits

Last year they owed me back tax as well. 

How can I be told I've paid too much tax on my tax return but then have a tax code that is saying I owe tax?

Dazed_and_C0nfused

It is just a provisional attempt to collect extra tax during the year.

The K signifies that your tax code allowances are negative.

How did you answer the question near the end of the return about letting HMRC update your current tax code?  Not the question about how the £300 will be collected.

I suspect you have told HMRC to make those updates without realising what you were doing.

curtis122

Do you mean the question, that asks something like, if you owe any tax etc,  would you like us to take it via your tax code? I say yes to this normally as figure it would be easier but I normally get to the end and it states I've paid to much. 

Is this anything to do with them predicting what tax I will owe next year based on this year? Its just confuses me how I can be told I've paid too much tax on my tax return but then have a tax code that is saying I owe tax?

Dazed_and_C0nfused

curtis122 said:

Do you mean the question, that asks something like, if you owe any tax etc,  would you like us to take it via your tax code? I say yes to this normally as figure it would be easier but I normally get to the end and it states I've paid to much. 

Is this anything to do with them predicting what tax I will owe next year based on this year? Its just confuses me how I can be told I've paid too much tax on my tax return but then have a tax code that is saying I owe tax?

There are two questions near the end of the return.

One is about how you to pay the tax owed for the year of the tax return (either direct to HMRC or via next year's tax code).

The other is about whether you are happy for HMRC to adjust your current tax code to try and get things more accurate for this year.

I think the second of those is what is affecting you.

NB.  They may be in a different order on the return.

curtis122

I do remember 2 questions about collection 'via adjustment to tax code' and I say yes to both. 

So on the basis that its been changed to try and get things more accurate for this year, it seems it is a case of them pre-empting my tax for this year based on what I entered last year (Tax Return year) 

penners324

Have a look at your online tax account. It'll explain the code more.

Looks like HMRC think your getting paid elsewhere and owe tax on it (2nd job, pension, savings)

curtis122

Ok so I've logged onto HMRC. I've looked under "How your tax free amount is calculated"  I see this under deductions- 

Dividend Tax

£2,406

Estimated tax you owe this year We estimate you have underpaid £932 tax

£6,211

Untaxed interest on savings and investments

£341

Profit - Property income

£2,520

Taxed interest on savings and investment

£6,953

Total deductions

£18,431

They have reduced my tax free amount by just over 6k. The "Estimated Tax you owe this year" as this is under the Dividend tax is it saying this is what they think I will be paying on dividends next year? I certainly will not be getting that much in dividends to be paying that much tax. The "Taxed Interest on savings and Investment" This is high, I'm assuming as I know my interest on my savings never came to over £800 that is made of pension as I made a biggish lump sum into it in 22/23 but I thought the tax was different on pensions, you do not pay as much tax if you put your money in there?

I've also had a look at Payments/credits under the Self Assessment section and I have an Overpayment from my tax return to April 23 of just over £300. How do I get paid this as normally I see it appear in my account, my partner got his a few days after in his account.