Higher Rate Tax - Have I got this Right?

So my situation is that due to savings interest last tax year, my tax code was changed to 955LX

I guess this means I start paying basic rate tax above £9,500 income rather than "normal" ~£12,570

But am I correct in also thinking that I will therefore start paying higher rate tax at a lower than "normal" level - i.e. £9,550 + £37,700 = £47,250 ?

I have never before entered the higher rate band although this year I think it will be a close call - I've been trying to avoid it by paying more into my pension but I only just thought the above might be the case and I have (perhaps incorrectly) been using £50,270 in my calculations.

Cheers!

Comments

  • eskbanker
    eskbanker Posts: 31,012 Forumite
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    Tax codes just drive PAYE deductions rather than actually adjusting your allowances as such, but what are the underlying factors that have led to that coding being issued, e.g. collecting underpaid tax from previous year or whatever?
  • grahamgoo
    grahamgoo Posts: 473 Forumite
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    Yes I think it's due to underpaid tax from savings interest.  The message went like this...

    Your tax code change

    We changed your tax code on 22 November 2023

    Why your tax code has changed

    We changed this because:

    • your Untaxed interest on savings and investments has been increased from £108 to £1,276
    • we estimate you have underpaid £156 tax this year

    I also had a separate message as follows at the beginning of November.  I can only assume it's related to the same thing as the savings interest is the only factor I can think of, but I'm not entirely sure as the figure is a bit different.

    You have paid too little tax.

    You owe HMRC £172.60

    What happens next

    We will automatically collect the tax by increasing the tax deducted from your wages, salary or pension, usually in equal instalments for 12 months from next April. 

  • eskbanker
    eskbanker Posts: 31,012 Forumite
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    I believe those will be two different matters, albeit related:

    The second one will be based on an assessment of your 2022/23 income, and they're saying that you owe them £172.60 in unpaid tax on the interest, which they'll collect via PAYE deductions during 2024/25.

    Having made that assessment for 2022/23, they'll also then assume that you'll earn a similar amount in 2023/24 and so adjust the 2023/24 coding in order to use PAYE to collect what they estimate your current year liability to be.

    Doesn't the 22 November 2023 notification explain the calculation leading to a revised coding of 955LX?  Do you use their online personal tax account facility, which allows you to review such calculations and to provide more accurate figures if any of their assumptions are inaccurate?
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,457 Forumite
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    eskbanker said:
    I believe those will be two different matters, albeit related:

    The second one will be based on an assessment of your 2022/23 income, and they're saying that you owe them £172.60 in unpaid tax on the interest, which they'll collect via PAYE deductions during 2024/25.

    Having made that assessment for 2022/23, they'll also then assume that you'll earn a similar amount in 2023/24 and so adjust the 2023/24 coding in order to use PAYE to collect what they estimate your current year liability to be.

    Doesn't the 22 November 2023 notification explain the calculation leading to a revised coding of 955LX?  Do you use their online personal tax account facility, which allows you to review such calculations and to provide more accurate figures if any of their assumptions are inaccurate?
    And just to add to that, interest will be a factor in determining if you are a higher rate payer or not but a tax underpayment doesn't.
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