Tax code change following self Ssessment (PAYE)

LGHelp

I'm PAYE but have had to complete a S/A this year for the first time due to breaching the CHB high income threshold & I'm also now in receipt of a small amount of rental income.  Due to the amount I owed I opted to pay the tax amount via my PAYE.  I've now recieved my tax code letter for 24/25 and am confused by the reduction in my tax code amount.

It says that due to the £1837 tax owed from an earlier tax year HMRC have therefore included an adjustment to reduce my tax-free allowance by £4375 so they can collect the £1837 tax in equal instalments.  

If I only owe £1837, surely my Tax Code would only reduce by this amount?   If someone could explain this it would be much appreciated 😊 

DE_612183

They are also probably estimating that you will do the same thing again this year, so to stop that occurring then the tax code is adjusted.

Have you phoned them to explain, they can usually change it - but it's on the proviso that you may end up with a tax bill at the end of the year.

When this has happened to me I've always paid it off in full - I just think it's neater.

eskbanker

LGHelp said:

If I only owe £1837, surely my Tax Code would only reduce by this amount?

No, the tax code needs to be adjusted by a figure that, when taxed, will result in a deduction of that amount - 40% of £4375 would be close to that at £1750 but if you show the full workings then it might all be clearer?

uknick

They take the amount off your tax code so you then pay your marginal rate of tax on the amount removed.

For example if you owed £2,000 in tax at a 40% tax rate you'll need to lose £2,000/40% giving you £5,000 from your tax code.

Dazed_and_C0nfused

LGHelp said:

I'm PAYE but have had to complete a S/A this year for the first time due to breaching the CHB high income threshold & I'm also now in receipt of a small amount of rental income.  Due to the amount I owed I opted to pay the tax amount via my PAYE.  I've now recieved my tax code letter for 24/25 and am confused by the reduction in my tax code amount.

It says that due to the £1837 tax owed from an earlier tax year HMRC have therefore included an adjustment to reduce my tax-free allowance by £4375 so they can collect the £1837 tax in equal instalments.  

If I only owe £1837, surely my Tax Code would only reduce by this amount?   If someone could explain this it would be much appreciated 😊 

Are you a Scottish resident taxpayer, paying tax at 42% in 2024-25??

LGHelp

Yes, scottish resident, which would make sense - 42% of £4375 is £1837.

Thanks for explaining,  appreciate it, and next year I'll just pay up front! 😃 

[Deleted User]

LGHelp said:

Yes, scottish resident, which would make sense - 42% of £4375 is £1837.

Thanks for explaining,  appreciate it, and next year I'll just pay up front! 😃 

It is an interest free loan though!