Personal allowance reduction more than expected

maurice28

Hi - I'm hoping someone might be able to speculate on this one, as it was wishful thinking trying to get through to the HMRC helpline to ask, ha.

I completed a tax self-assessment for the 22/23 tax year, as I got a new job that took me over the Higher Income Child Benefit Charge tax threshold for part of it so I knew I'd have to pay. Did the return, it said I owed £211 and that it would be collected via my 24/25 tax code. I also paid the tax charge for the 23/24 tax year as I 'went along' last year, so that should be settled as far as I know.

I've just checked my online HMRC account and my tax code for this year is 651L. I was expecting it to change to account for the £211 I owe, but using the online calculator on HMRC shows that I'll pay an extra £2,424 for the year over if I had the standard 1257L tax code.

If I divide that £2,424 by 12 I get £202 - could it be HMRC are planning to take the majority of the tax I owe in month one, then I'll return to a tax code of 1257L after that? I thought going off information online it was usually paid back over 12 months.

Estimated income for this 24/25 tax year is around £55,600 - that exact figure will depend on the bonus I get this month but already takes into account 10% salary sacrifice pension contributions and a car allowance I receive. Can't think of any other additions or reductions that would affect the tax code.

Anyone able to advise at all? Sorry if this is a silly question!

maurice28

Sorry, should add, on my online HMRC account it had my estimated income as £63,000. I've submitted an update with the £55,600 figure, so not sure if that will have much of an impact when it is processed.

Dazed_and_C0nfused

If you look at the breakdown of your tax code it will show the deductions that are factored in.

But I think it is highly likely that there is a small deduction of £527/£528 to collect the £211 Self Assessment Balancing Payment from 2022-23.

And the rest will be Child Benefit so you pay some extra tax for 2024-25, towards any HICBC due for 2024-25.

Now you have altered your estimated earnings that will probably be removed as the HICBC thresholds were recently changed.

NB.  Changed as in announced by Jeremy Hunt, whether HMRC have updated their systems yet to reflect that I don't know but if they have and your only taxable income is estimated to be £55,600 then the Child Benefit element (assuming there is one) would be removed.

maurice28

Dazed_and_C0nfused said:

But I think it is highly likely that there is a small deduction of £527/£528 to collect the £211 Self Assessment Balancing Payment from 2022-23.

And the rest will be Child Benefit so you pay some extra tax for 2024-25, towards any HICBC due for 2024-25.

Amazing, thank you so much - how have I never noticed it breaks down the deductions under the tax code?! But you're absolutely right, there is a £527 reduction for the £211, and then a £5,531 reduction for child benefit. As you say, hopefully this then gets removed as I don't expect to be eligible for the charge this year.

Incidentally, how do the amounts above work? I.e. how does reducing my personal tax allowance by £527 mean I actually pay £211 out of my pocket? I assume the link there is that 211 is around 40% of 527 (i.e. my tax bracket) but I'm not smart enough to work out how it works!

[Deleted User]

maurice28 said:

Dazed_and_C0nfused said:

But I think it is highly likely that there is a small deduction of £527/£528 to collect the £211 Self Assessment Balancing Payment from 2022-23.

And the rest will be Child Benefit so you pay some extra tax for 2024-25, towards any HICBC due for 2024-25.

Amazing, thank you so much - how have I never noticed it breaks down the deductions under the tax code?! But you're absolutely right, there is a £527 reduction for the £211, and then a £5,531 reduction for child benefit. As you say, hopefully this then gets removed as I don't expect to be eligible for the charge this year.

Incidentally, how do the amounts above work? I.e. how does reducing my personal tax allowance by £527 mean I actually pay £211 out of my pocket? I assume the link there is that 211 is around 40% of 527 (i.e. my tax bracket) but I'm not smart enough to work out how it works!

Exactly that - you will pay 40% tax on an additional £527 of income. 40% of 527 is £210.80 - close enough!

Dazed_and_C0nfused

maurice28 said:

Dazed_and_C0nfused said:

But I think it is highly likely that there is a small deduction of £527/£528 to collect the £211 Self Assessment Balancing Payment from 2022-23.

And the rest will be Child Benefit so you pay some extra tax for 2024-25, towards any HICBC due for 2024-25.

Amazing, thank you so much - how have I never noticed it breaks down the deductions under the tax code?! But you're absolutely right, there is a £527 reduction for the £211, and then a £5,531 reduction for child benefit. As you say, hopefully this then gets removed as I don't expect to be eligible for the charge this year.

Incidentally, how do the amounts above work? I.e. how does reducing my personal tax allowance by £527 mean I actually pay £211 out of my pocket? I assume the link there is that 211 is around 40% of 527 (i.e. my tax bracket) but I'm not smart enough to work out how it works!

In your case It is simply that.

By reducing your tax code allowances by £527 it means you will pay extra 40% tax on £527.

£527 x 40% = £210.80 (if it was £528 it would presumably be a few pence to much).

And the £5,531 is the same.  That would mean you paid anc extra £2,212.40.  That £2,212.40 would be extra tax on your P60 so when you complete your Self Assessment and the actual HICBC charge is calculated you have paid extra tax towards it (or even all of it).

£2,212 looks to be the current annual Child Benefit for 2 children.

maurice28

Thanks so much both!