Tax Code Notice Question

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  • BoGoF
    BoGoF Posts: 7,090 Forumite
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    gt568 said:
    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?
    It won't make any difference, you will still pay the same amount of tax overall.
  • gt568
    gt568 Posts: 2,493 Forumite
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    BoGoF said:
    gt568 said:
    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?
    It won't make any difference, you will still pay the same amount of tax overall.

    Well thats what I thought, but he was adamant and has produced an excel spreadsheet that shows different, but he must have an error in there or something.....the taxable money is the same regardless of where it is coded?

    He is in the same boat, pension + income.
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  • molerat
    molerat Posts: 31,803 Forumite
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    Looking at the amounts it is likely simpler to have the extra taken from the pension as it is a straightforward £10K.  If the allowance was set against the job it would have to be calculated differently as a straight £10K deduction would put you into higher rate tax being deducted.  There would be no difference in the outcome though, the total tax deducted would be the same in the end.
  • BoGoF
    BoGoF Posts: 7,090 Forumite
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    edited 8 February at 4:24PM
    gt568 said:
    BoGoF said:
    gt568 said:
    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?
    It won't make any difference, you will still pay the same amount of tax overall.

    Well thats what I thought, but he was adamant and has produced an excel spreadsheet that shows different, but he must have an error in there or something.....the taxable money is the same regardless of where it is coded?

    He is in the same boat, pension + income.
    If he is literally allocating BR to the pension in his calculation then it will look better as only 20% tax will come off but for reasons described above some of it needs to be taxed at 40%
  • eskbanker
    eskbanker Posts: 30,846 Forumite
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    gt568 said:
    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....
    You should be paying £4K tax on that £10K income, but only £2K would be collected if the coding wasn't adjusted - effectively reducing the allowance by £10K, thereby taxing this amount by 20%, has the effect of collecting the other £2K.
  • xylophone
    xylophone Posts: 44,296 Forumite
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    You refer to your pension as a "government pension".

    Do you mean that you were formerly in a public service scheme (Civil Service, Local Government. TPS, Police etc) and  are now receiving a  Defined Benefit pension?

    If so, you have not triggered the MPAA.

    You are in a SMART pension scheme with your current employer. Tax relief is given under the net pay arrangement.

    https://www.smartpension.co.uk/members-articles/tax-and-your-pension

    Had you thought of increasing your pension contribution?

    https://www.smartpension.co.uk/members-articles/add-more-to-your-pension-savings

  • xylophone
    xylophone Posts: 44,296 Forumite
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    Your salary (but not your pension income) is "relevant earnings" for the purposes of tax relief.

    https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

    Have you obtained a state pension forecast?

    https://www.gov.uk/check-state-pension
  • gt568
    gt568 Posts: 2,493 Forumite
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    I have obtained a state pension forcast but I am a long way from getting that - not sure of the relevance of that at this stage?

    I don't know what the MPAA is or its relevance here, sorry.

    My pension is AFPS.
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