Paying back tax on personal allowance

greg242424

Hi All, I hope this is a quick and easy question...

Tax year 22-23, I earned through employment, 121K, whereas my tax code was 1257L.  I thought my PAYE would take care of it, but evidently not (been on PAYE all my life, but I fully accept responsibility that I should have been alive to this).  I have submitted my tax return and the calculation is 4K to be paid back.  This indicates that the tax I pay back for the section of personal allowance (10K) I wasn't entitled to is 40%, but I would have thought it would be 20% (2K) since that first 12K would revert to the "20% zone".

Or maybe I'm not thinking about it the right way?

Any advice would be appreciated.  If I owe it, then I owe it....

DE_612183

With the +100k which reduces your personal allowance, this can only be done retrospectively really - so yes you do owe it.

You can either opt to get it recovered via tax code next year - or pay off as a lump sum.

I went for the latter - it seemed neater to me.

[Deleted User]

Two issues: 

The amount that you started to pay income tax should have been at 2070 of income. (Your were 21000 over 100000 and lose 10500 of your personal allowance) You received a personal allowance of 12570. That’s an underpayment of £2100 (10500 at 20%).

Additionally the figure above which you should have been paying 40% is 39770. (Personal allowance 2070 plus 37700) whereas you didn’t start paying 40% until you reached 50270 (12570 plus 37700) 

Thats another underpayment of 10500 at (40-20) % which is £2100. 

Total underpayment of £4200.

eskbanker

The above is undoubtedly the correct way to calculate the unpaid tax, but it's often pointed out that the marginal tax rate for income between £100K and £125,140 is effectively 60%, by virtue of the tapered loss of personal allowance, so another simplistic (but less technically correct) way of looking at it is that you only paid 40% on that £21K but needed to pay an extra 20%, hence £4.2K.

Dazed_and_C0nfused

DE_612183 said:

With the +100k which reduces your personal allowance, this can only be done retrospectively really - so yes you do owe it.

You can either opt to get it recovered via tax code next year - or pay off as a lump sum.

I went for the latter - it seemed neater to me.

You can mitigate a large bill after the end of the tax year by keeping your estimated earnings up to date on your Personal Tax Account.

HMRC will then take that into account in calculating a new tax code.  Still provisional but might pay more in year and less after.

Although on MSE that might be seen as counterintuitive as an interest free loan from HMRC isn't to be sniffed at!

greg242424

Thanks for the responses!  Obviously I owe what I owe, it's more my ignorance of the tax system being on PAYE for so long, and it's far from straightforward to me, but I'm grateful for the advice and explanation!