tax code changed due to untaxted interest on savings and investiments

eskbanker

Yes, wouldn't disagree with any of that and am certainly not trying to defend the way HMRC have this set up, especially given the widespread confusion it causes.  However, from other threads, I remain convinced that in many cases the concerns are unfounded, in terms of your point about the actual role of the tax code, i.e. to collect PAYE tax, not to recalculate personal allowances, so some get worked up as a result of failing to understand that distinction and falsely believing that they're being penalised!

zagfles

eskbanker said:

Yes, wouldn't disagree with any of that and am certainly not trying to defend the way HMRC have this set up, especially given the widespread confusion it causes.  However, from other threads, I remain convinced that in many cases the concerns are unfounded, in terms of your point about the actual role of the tax code, i.e. to collect PAYE tax, not to recalculate personal allowances, so some get worked up as a result of failing to understand that distinction and falsely believing that they're being penalised!

They are being penalised. They are being denied the opportunity to increase their earnings without being incorrectly taxed, even if just temporarily. Someone earning £11.5k plus £1k of interest may have their tax code reduced to 1157L and think "not worth doing overtime as I'll be taxed". Same with someone drawing a SIPP. 

People like us who understand the rules will know what to do. Update the estimate. Claim back the excess tax the incompetent PAYE has deducted. But most people are clueless about tax and how PAYE works. They assume HMRC know what they're doing. 

eskbanker

zagfles said:

eskbanker said:

Yes, wouldn't disagree with any of that and am certainly not trying to defend the way HMRC have this set up, especially given the widespread confusion it causes.  However, from other threads, I remain convinced that in many cases the concerns are unfounded, in terms of your point about the actual role of the tax code, i.e. to collect PAYE tax, not to recalculate personal allowances, so some get worked up as a result of failing to understand that distinction and falsely believing that they're being penalised!

They are being penalised. They are being denied the opportunity to increase their earnings without being incorrectly taxed, even if just temporarily. Someone earning £11.5k plus £1k of interest may have their tax code reduced to 1157L and think "not worth doing overtime as I'll be taxed".

That's a slightly different point - yes, someone could be penalised if taking inappropriate actions as a result of misunderstanding the unnecessary complexity and presentation, but the reduced coding itself doesn't inherently penalise as such.

zagfles

eskbanker said:

zagfles said:

eskbanker said:

Yes, wouldn't disagree with any of that and am certainly not trying to defend the way HMRC have this set up, especially given the widespread confusion it causes.  However, from other threads, I remain convinced that in many cases the concerns are unfounded, in terms of your point about the actual role of the tax code, i.e. to collect PAYE tax, not to recalculate personal allowances, so some get worked up as a result of failing to understand that distinction and falsely believing that they're being penalised!

They are being penalised. They are being denied the opportunity to increase their earnings without being incorrectly taxed, even if just temporarily. Someone earning £11.5k plus £1k of interest may have their tax code reduced to 1157L and think "not worth doing overtime as I'll be taxed".

That's a slightly different point - yes, someone could be penalised if taking inappropriate actions as a result of misunderstanding the unnecessary complexity and presentation, but the reduced coding itself doesn't inherently penalise as such.

Yes it does. I gave an example here: https://forums.moneysavingexpert.com/discussion/6227843/big-overpayment-of-tax-caused-by-deducting-interest-from-tax-code

Being temporarily out of pocket not only potentially loses (or costs) interest but also having to waste time getting tax corrected/refunded. 

eskbanker

zagfles said:

eskbanker said:

zagfles said:

eskbanker said:

Yes, wouldn't disagree with any of that and am certainly not trying to defend the way HMRC have this set up, especially given the widespread confusion it causes.  However, from other threads, I remain convinced that in many cases the concerns are unfounded, in terms of your point about the actual role of the tax code, i.e. to collect PAYE tax, not to recalculate personal allowances, so some get worked up as a result of failing to understand that distinction and falsely believing that they're being penalised!

They are being penalised. They are being denied the opportunity to increase their earnings without being incorrectly taxed, even if just temporarily. Someone earning £11.5k plus £1k of interest may have their tax code reduced to 1157L and think "not worth doing overtime as I'll be taxed".

That's a slightly different point - yes, someone could be penalised if taking inappropriate actions as a result of misunderstanding the unnecessary complexity and presentation, but the reduced coding itself doesn't inherently penalise as such.

Yes it does. I gave an example here: https://forums.moneysavingexpert.com/discussion/6227843/big-overpayment-of-tax-caused-by-deducting-interest-from-tax-code

Being temporarily out of pocket not only potentially loses (or costs) interest but also having to waste time getting tax corrected/refunded. 

Of course reduced codings can penalise in some circumstances, but my point is that they don't inherently penalise, so many won't be affected, although some undoubtedly will be!

NotTightJustCareful

So adjusting the tax code to account for interest in these circumstances is utterly pointless. Yet HMRC still do it. Maybe they wouldn't have to come up with desperate ideas like closing the SA helpline for 6 months (even if they did go back on it) if so much staff resource wasn't wasted on dealing with issues like this which would be relatively simple to fix with software changes in PAYE

 I would be a relatively software fix and it would stop all this unnecessary hassle when patently anyone estimated to earn under the personal allowance (PA) is going to have 6K of saving interest allowance and it been triggered by hitting the PA is flawed logic. 

molerat

There is no such thing as a small software fix in systems like this. Any minor change could have a large knock on effect so many hours of testing for something with a relatively minor demographic affected.

zagfles

molerat said:

There is no such thing as a small software fix in systems like this. Any minor change could have a large knock on effect so many hours of testing for something with a relatively minor demographic affected.

It is a simple change, even though it's govt and will probably cost a stupid amount of time and money it'll probably be far less than the time wasted dealing with people who've been incorrectly taxed with the flawed way it works now. 

xylophone

time wasted 

And boy, is time wasted!


https://forums.moneysavingexpert.com/discussion/comment/79585658/#Comment_79585658

The pensioner in question had to go through exactly the same rigmarole for the tax year 23/4 - the HMRC rep agreed once again that the

simplest option was just to deduct SP amount from PA and use the resulting figure to set code for her occupational pension. 

This has happened automatically this year - as a result of increase in SP (and increase to come in OP) she is actually a taxpayer now for

the first time in years.

molerat

xylophone said:

time wasted 

And boy, is time wasted!


https://forums.moneysavingexpert.com/discussion/comment/79585658/#Comment_79585658

The pensioner in question had to go through exactly the same rigmarole for the tax year 23/4 - the HMRC rep agreed once again that the

simplest option was just to deduct SP amount from PA and use the resulting figure to set code for her occupational pension. 

This has happened automatically this year - as a result of increase in SP (and increase to come in OP) she is actually a taxpayer now for

the first time in years.

If they had updated their occupational pension income to the correct amount in their on line tax account then the code would have been changed with the untaxed interest element removed.  Interest is only ever included in the calculation if their is no other income to use the allowance.