Tax on job and pension payments

mamacita63

Hi, this is a bit complicated so not sure if anyone can help but I'm so confused. On 11/11/2023 I started receiving NHS pension payments of approx. £1093 (13250 per year, recently went up about 2%). In my job I earn £57802 gross per year and out of this I pay 11.6% into the newer NHS pension and am taxed approximately £672 per month. The pension has only been having deductions of £11 per month so I ran HMRC last week and they said my  tax code would be adjusted. I've just looked online and it seems from what I can see that I will now be taxed £20,780 per year which seems an awful lot. Below is some info I copied and pasted, is anyone able to tell me whether this seems roughly correct? Thanks very much in advance.

Your tax code for NHS PENSIONS PAYMASTER 1836 LTD is K820X

Your tax code for XXXX HEALTHCARE NHS TRUST is BRX

How we calculate it	Previous tax code	Current tax code
Personal Allowance	£12,570	£12,570
Additions
You do not have any additions	£0	£0
Deductions
Adjustment to rate band	£0	£20,780
Total deductions	£0	£20,780
Your total tax-free amount	£12,570	−£8,210

Hoenir

Basic rate tax band ends at £50,270 

You salary plus pension less £50,270 =  £20,780

mamacita63

Hoenir said:

Basic rate tax band ends at £50,270 

You salary plus pension less £50,270 =  £20,780

Thanks but what does that mean in terms of how much tax I will pay?

DE_612183

Tax on income of £71k should be about £15,800 pa or £1,320 per month. - how that gets split across your two jobs will depend on the tax code.

I presume if you started receiving it in November, then there may be some tax to pay from last year, so your code will be adjusted to recover that.

Have you got a 2023-24 end of tax year statement?

Bookworm105

you are misunderstanding what a tax code means. The numbers are not the amount of tax you have to pay, they are the amount of money on which your tax rate will be applied.
Where you have 2 sources of income, a negative code means your earnings in the second job have been artificially increased so you have a bigger number on which the tax rate is then applied. That is because you underpaid tax in previous years and they need to collect back taxes through PAYE by treating you as having an inflated income (for now!)

It appears you have been receiving the personal allowance £12,570 on both your salary and your pension. That is wrong.

Hence you have such a small tax deduction off the pension 13,250 pension - 12,570 tax free allowance = 680 x 20% tax = 136 / 12 = £11 tax per month (so £136 total for the year)

You have actually also been receiving 12,570 tax free in the salary calculation
Pay net of pension = 51,097
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(51,097-50270) = 827 x 40% = 331
total salary tax 7871 (approx 656 per month tax)
Total income tax payable 7871+136 = 8,007

In reality your total annual gross income is 57,820 less 11.6% pension deduction = 51,097 + 13,250 pension in payment = 64,347 per year
(Ignoring national insurance) your correct tax position on 64,347 would be 
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(64,347-50270) = 14,077 x 40% = 5,631
Total income tax payable 13,171

So you underpaid tax by 13171- 8007 = 5,164 and that needs to be collected over and above the tax due on your monthly earnings this year 

as it stands at the moment, your coding notification means:
XXXX HEALTHCARE NHS TRUST is BRX - you will pay 20% tax on every penny earned from that source 
NHS PENSIONS PAYMASTER 1836 LTD is K820X - you will pay tax on those earnings + a further £8,210 at 20% and 40% based on the tax thresholds for that total earning

the fact both codes end with X means these are temporary as HMRC has yet to work out exactly what you owe and change your codes for each income source to a permanent one 

mamacita63

Bookworm105 said:

you are misunderstanding what a tax code means. The numbers are not the amount of tax you have to pay, they are the amount of money on which your tax rate will be applied.
Where you have 2 sources of income, a negative code means your earnings in the second job have been artificially increased so you have a bigger number on which the tax rate is then applied. That is because you underpaid tax in previous years and they need to collect back taxes through PAYE by treating you as having an inflated income (for now!)

It appears you have been receiving the personal allowance £12,570 on both your salary and your pension. That is wrong.

Hence you have such a small tax deduction off the pension 13,250 pension - 12,570 tax free allowance = 680 x 20% tax = 136 / 12 = £11 tax per month (so £136 total for the year)

You have actually also been receiving 12,570 tax free in the salary calculation
Pay net of pension = 51,097
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(51,097-50270) = 827 x 40% = 331
total salary tax 7871 (approx 656 per month tax)
Total income tax payable 7871+136 = 8,007

In reality your total annual gross income is 57,820 less 11.6% pension deduction = 51,097 + 13,250 pension in payment = 64,347 per year
(Ignoring national insurance) your correct tax position on 64,347 would be 
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(64,347-50270) = 14,077 x 40% = 5,631
Total income tax payable 13,171

So you underpaid tax by 13171- 8007 = 5,164 and that needs to be collected over and above the tax due on your monthly earnings this year 

as it stands at the moment, your coding notification means:
XXXX HEALTHCARE NHS TRUST is BRX - you will pay 20% tax on every penny earned from that source 
NHS PENSIONS PAYMASTER 1836 LTD is K820X - you will pay tax on those earnings + a further £8,210 at 20% and 40% based on the tax thresholds for that total earning

the fact both codes end with X means these are temporary as HMRC has yet to work out exactly what you owe and change your codes for each income source to a permanent one 

Thank you very much for explaining it so clearly! Presumably they can now "see" my pension payments and will eventually adjust it to be more accurate? I'm not sure they have allowed for the tax relief on my 11.6% pension contributions.

molerat

I'm not sure they have allowed for the tax relief on my 11.6% pension contributions.

As that is paid from your gross pay reducing your taxable income they do not need to see it or account for it, it does not affect your tax situation.

[Deleted User]

mamacita63 said:

Bookworm105 said:

you are misunderstanding what a tax code means. The numbers are not the amount of tax you have to pay, they are the amount of money on which your tax rate will be applied.
Where you have 2 sources of income, a negative code means your earnings in the second job have been artificially increased so you have a bigger number on which the tax rate is then applied. That is because you underpaid tax in previous years and they need to collect back taxes through PAYE by treating you as having an inflated income (for now!)

It appears you have been receiving the personal allowance £12,570 on both your salary and your pension. That is wrong.

Hence you have such a small tax deduction off the pension 13,250 pension - 12,570 tax free allowance = 680 x 20% tax = 136 / 12 = £11 tax per month (so £136 total for the year)

You have actually also been receiving 12,570 tax free in the salary calculation
Pay net of pension = 51,097
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(51,097-50270) = 827 x 40% = 331
total salary tax 7871 (approx 656 per month tax)
Total income tax payable 7871+136 = 8,007

In reality your total annual gross income is 57,820 less 11.6% pension deduction = 51,097 + 13,250 pension in payment = 64,347 per year
(Ignoring national insurance) your correct tax position on 64,347 would be 
first £12,570 x 0% = 0
(50270-12570) = 37,700 x 20% = 7,540
(64,347-50270) = 14,077 x 40% = 5,631
Total income tax payable 13,171

So you underpaid tax by 13171- 8007 = 5,164 and that needs to be collected over and above the tax due on your monthly earnings this year 

as it stands at the moment, your coding notification means:
XXXX HEALTHCARE NHS TRUST is BRX - you will pay 20% tax on every penny earned from that source 
NHS PENSIONS PAYMASTER 1836 LTD is K820X - you will pay tax on those earnings + a further £8,210 at 20% and 40% based on the tax thresholds for that total earning

the fact both codes end with X means these are temporary as HMRC has yet to work out exactly what you owe and change your codes for each income source to a permanent one 

Thank you very much for explaining it so clearly! Presumably they can now "see" my pension payments and will eventually adjust it to be more accurate? I'm not sure they have allowed for the tax relief on my 11.6% pension contributions.

NHS pensions are deducted from your gross salary before tax is calculated. You are receiving the correct tax relief.