Why Am I Still Asked To Pay More Tax Every Year?

yberllan

My Pension payment is removed before Tax calculation the number given includes Tax removed. 

BoGoF

So it would appear that the only reason you are owing tax is that you are being given the benefit of some personal allowances that turn out not to be due because you are above the threshold where it reduces to nil. As has been said before you need to update your personal tax account with an accurate estimate of your taxable income so that the code is correct. In your circumstances your code should be 0T

yberllan

In a nut shell it looks to be the Tax Code to be incorrect again for 2022/23. What I struggle to understand is that the tax should take in what you are tax free, but then known that what ever you earn is correctly taxed regardless of the value you may earn. How can I ensure that going forwards the code is going to be correct ? 

BoGoF

yberllan said:

In a nut shell it looks to be the Tax Code to be incorrect again for 2022/23. What I struggle to understand is that the tax should take in what you are tax free, but then known that what ever you earn is correctly taxed regardless of the value you may earn. How can I ensure that going forwards the code is going to be correct ? 

The tax collected will be based on the tax code operated and if that's wrong your tax is wrong. Unless your annual taxable income is going to be below £125,140 then you should be on code 0T (that figure may change in the unlikely event personal allowance gets increased). But the best way to keep on top of it is register for personal tax account and make sure what HMRC are estimating as your income is correct. It maybe that as you get an annual bonus at year end the estimate is based on 12 x your normal salary but that Month 12 bonus means this is not accurate and there is no time to correct the position.

Johnjdc

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

BoGoF

Johnjdc said:

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

You believe wrong. If the estimated income is accurate then the restricted personal allowance will be calculated correctly and the correct code operates.

Johnjdc

BoGoF said:

Johnjdc said:

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

You believe wrong. If the estimated income is accurate then the restricted personal allowance will be calculated correctly and the correct code operates.

Fair enough. The HMRC forums are littered with people for whom this has not happened.

sheramber

Johnjdc said:

BoGoF said:

Johnjdc said:

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

You believe wrong. If the estimated income is accurate then the restricted personal allowance will be calculated correctly and the correct code operates.

Fair enough. The HMRC forums are littered with people for whom this has not happened.

Do you know that their estimated income  was accurate?

Johnjdc

sheramber said:

Johnjdc said:

BoGoF said:

Johnjdc said:

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

You believe wrong. If the estimated income is accurate then the restricted personal allowance will be calculated correctly and the correct code operates.

Fair enough. The HMRC forums are littered with people for whom this has not happened.

Do you know that their estimated income  was accurate?

Not with any degree of certainty, but they are presenting as PAYE, so if PAYE forecasts are routinely failing to guess that someone paid £10k a month will earn £120k in a year, therefore their code is wrong, therefore they don't pay the 60%, and therefore they are in tax debt at the end of the year, then we are just saying the same thing using different words.

Dazed_and_C0nfused

Johnjdc said:

sheramber said:

Johnjdc said:

BoGoF said:

Johnjdc said:

I believe that by default the fact that £100k to £125k is randomly taxed at an effective rate of 60% is not factored in by most PAYE processes, so you will end up owing 20% of whatever you earn between those numbers.

You believe wrong. If the estimated income is accurate then the restricted personal allowance will be calculated correctly and the correct code operates.

Fair enough. The HMRC forums are littered with people for whom this has not happened.

Do you know that their estimated income  was accurate?

Not with any degree of certainty, but they are presenting as PAYE, so if PAYE forecasts are routinely failing to guess that someone paid £10k a month will earn £120k in a year, therefore their code is wrong, therefore they don't pay the 60%, and therefore they are in tax debt at the end of the year, then we are just saying the same thing using different words.

PAYE always starts in arrears information wise.

The tax codes for 2024-25 will be calculated in the next few weeks so unless something prompts a further review someone earning £95k now (with no other complications) will often have the emergency code of 1257L applied for the coming year.

So if they get a pay rise or bonus during 2024-25 they may receive more tax code allowances than are really due. 

Simple way to keep on top of things is to ensure your estimated earnings are accurate on your Personal Tax Account as any update to those will prompt a tax code review.  

At the end of the day no one knows better than the taxpayer themselves how much they can expect to earn, anyone else is just guesstimating.