Tax Code Notice Question

gt568

Hey dudes!

I've just received my tax code notice for 24-25....

And it states this...

Pers Allowance                          12570

Total                                           12570

Less Adjustment to Rate Bands 10115

Total Tax Free amount                2455

What is the "less adjustment to Rate bands"? 

and why do I only get 2455 as a tax free allowance?

Sorry if these are stupid questions.....

I have an income and a pension in payment.

la531983

Are you receiving the State pension or a private one?

molerat

Your total income makes you a higher rate tax payer but each income individually will only deduct tax at basic rate so reducing your allowance will take that extra tax.

BoGoF

gt568 said:

Hey dudes!

I've just received my tax code notice for 24-25....

And it states this...

Pers Allowance                          12570

Total                                           12570

Less Adjustment to Rate Bands 10115

Total Tax Free amount                2455

What is the "less adjustment to Rate bands"? 

and why do I only get 2455 as a tax free allowance?

Sorry if these are stupid questions.....

I have an income and a pension in payment.

I would hazard a guess that you have more than one income source which when combined takes you into the higher rate bracket? The other source is likely coded BR and to avoid any underpayment of tax HMRC will try and estimate how much of the basic rate band will be used at that other source.

gt568

la531983 said:

Are you receiving the State pension or a private one?

A government based pension.

gt568

I get 48k salary and 12k pension.

gt568

molerat said:

Your total income makes you a higher rate tax payer but each income individually will only deduct tax at basic rate so reducing your allowance will take that extra tax.

It says my pension has the 2k tax allowance and my wage is at BR

BoGoF

gt568 said:

I get 48k salary and 12k pension.

So on a total income of £60k your total tax payable is £11,432 (£60,000 - £12,570 then £37,700 @ 20% & £9730 @ 40%).

BR code on your £48k salary would collect £9,600 and if you could an unrestricted tax code on your pension you would pay nil so £1,832 underpaid. The restricted tax code of £2455 means you pay 20% on £9,545 of your pension (£12,000 - £2,455) = £1909. There is a slight discrepancy in the overall tax paid (£77 too much paid) but would need to see what the actual estimates HMRC are using to reconcile.

molerat

£60K income puts you around £10K into 40% tax but only 20% is being deducted through PAYE.  Reducing your code by £10K collects the additional 20% on that £10K.

gt568

This presumably all takes into account the SMART pension contributions of 240pm?

Someone at work said I'd be better of putting the tax free allowance against the wage and BR the pension but I can't see how that will make a difference?

gt568

So in essensce the "band adjustment" is how I'm paying the 40% tax element?

If only 10k of my income is in the 40% bracket why is my tax free allowance reduced by 10k?  What am I missing here?  Sorry for seeming thick, only ever had 1 income previously....