Tax code query

Timothyayre

My tax free personal allowance is being reduced in 24-25 by £3491 for HMRC to recover £1396 in underpaid tax. How have they arrived at the £3491 figure? I understand that I will pay basic rate sooner but if I don't reach the higher tax band I'll only pay back 20 per cent of 3491 (£698)? I must have misunderstood what they are saying surely? 

Snwps

Looks like they've split it to repay over 2 years, I may be wrong here.

Dazed_and_C0nfused

Timothyayre said:

My tax free personal allowance is being reduced in 24-25 by £3491 for HMRC to recover £1396 in underpaid tax. How have they arrived at the £3491 figure? I understand that I will pay basic rate sooner but if I don't reach the higher tax band I'll only pay back 20 per cent of 3491 (£698)? I must have misunderstood what they are saying surely? 

£3,491 is based on the assumption you will pay higher rate tax on the full £3,491 extra pay that will be taxed by your employer/pension payer.

£3,491 x 40% = £1,396.40

If your earnings are less than HMRC have estimated then yes, it's possible the full amount won't be collected in one year and HMRC will adjusted your code in a later year to collect any balance still owed.

BoGoF

Unless they think you will be higher rate in 24/25. What is your estimated income

Timothyayre

Thank you everyone. They also included an Adjustment to Rate bands of £4071 because I have a second job. Sometimes this second job puts me over the 40% threshold but not always. Should I adjust my expected income to fall below the 40% threshold or just leave it? 

Dazed_and_C0nfused

Timothyayre said:

Thank you everyone. They also included an Adjustment to Rate bands of £4071 because I have a second job. Sometimes this second job puts me over the 40% threshold but not always. Should I adjust my expected income to fall below the 40% threshold or just leave it? 

The best thing to do is make sure the figures used as the estimate of your earnings at each job are as accurate as possible.  Much easier to do this for 2023-24 then 2024-25 when that tax year hasn't even started!

You can always update things later in the year to keep it reasonably accurate.