Tax code change - will I pay more

IncreasinglyBaffled

HI

I’m in the fortunate position to be in receipt of a DB pension (£40.2K pa) and also still working in a part time salaried position (£40K pa plus car allowance of £3.5K).  I was full time until about 6 months ago.  My tax codes for the last few years have always been SD1 for the pension (going by the HMRC website this code means all income from this pension is taxed at the higher rate), and S1257L for when I was full time salary, changing to S116L when I moved to part time (going by the HMRC website this code means the standard tax free allowance is applied).  I have been with the same employer for several years.  Each year I submit a tax return with no problems – if there is a discrepancy it’s usually less than £10.

I’ve just received a tax code notice from HMRC with the following lines:

·         Total personal allowance is £12570

·         Less Adjustment to Rate Bands £20689

·         £8119 to be added to your wages, salary or pension

·         Employer details and: £8119 is added to this income and SK810X replaces S116L

·         Pension provider details and: £0 of this income is tax free, SD0X replaces SD1

·         This totals your tax free amount £ -8119.

I’m presuming the change in tax codes has been triggered by me moving from full time salary to a part time reduced salary ?  Before I try phoning HMRC about this latest tax code notice, can anyone explain in lay persons terms what it actually means and if I’ll be paying more tax ?  My understanding is that the ‘X’ at the end of each new tax code means I’m being placed on Emergency Tax so my fear is that for a few months I’m going to end up paying a lot more in tax than I’ve previously paid and it will then take umpteen calls/grief to HMRC and ages for them to sort out.

Bookworm105

it means you have underpaid tax in the past and they are now claiming it by putting you on a negative tax code so they will collect £8,119 x 40% = £3,247.60 in extra tax 

[Deleted User]

Bookworm105 said:

it means you have underpaid tax in the past and they are now claiming it by putting you on a negative tax code so they will collect £8,119 x 40% = £3,247.60 in extra tax 

As the code has an ‘X’ after it, as one would expect, only 9/12 of the £3247.60 will be collected as we are now in July, Month 4. 

£811.90 will not be collected and will be dealt with at end of year review. 

IncreasinglyBaffled

Thanks for the comments.  I still cant understand how I've ended up in this situation when it's all PAYE and I'm now earning less.  It all looks a bit crazy to my untrained eye.  

Albermarle

I am not a tax expert and I am not saying this is the reason in this case, but I do know that almost every time my income situation has changed over the years, the tax code has been wrongly changed resulting in paying more tax, until it is sorted out by a call to HMRC.
It happened recently to a family member as well. The main problem seems to be is that if you change jobs, they add both salaries together, which catapults you into a different tax band situation.
To be fair to HMRC I think employers being slow to send info to them are at least partly at fault.

OP - One positive point is that if it is a mistake, which is then rectified, you should automatically get refunded in subsequent pay packets.

sheramber

 Pension provider details and: £0 of this income is tax free, SD0X replaces SD1

 on CODE  SD1   you paid tax the Scottish higher rate od 42%

On CODE SD0X  you will pay tax at the scottish Intermediate rate  of 21%  for the rest od the year. 

IncreasinglyBaffled

Thanks folks.  It sounds like I'm going to have to phone them.  Fingers crossed that I get someone knowlegable and helpful. 

Dazed_and_C0nfused

Reading your original post I think the thing that has changed, which has in turn created the more complicated tax code is the change to your taxable earnings.

I suspect that when you were full time you were liable to higher rate tax on your employment and as such HMRC would use a higher rate code for your pension (SD1).

Now you have gone part time you aren't higher rate on your earnings so if the SD1 tax code contributed at your pension you would be paying more tax than is needed.

The consequence of this is a much more complicated main tax code (the K prefix or L suffix one) which needs to factor in the fact that you aren't liable to higher rate tax on either source of income but you are overall.

That is why this tax code entry exists,

Less Adjustment to Rate Bands £20689

You aren't going to be able to avoid that unless you are higher rate on your job alone, and then SD1 can be used again for the pension.

But what you can do is provide as accurate as possible estimates for each source, essentially what HMRC will need is the amount you expect to be on each P60 next April.  This is probably far easier to estimate for the pension than your employment but just let them have the best figures you can come up with.

It's not unusual to owe extra tax or be due a refund at the end of the year when a "Less Adjustment to Rate Bands" entry is in your tax code as even small changes to your earnings or pension can mean that value soon becomes out of date.

chrisbur

Putting some figures to the new tax codes using....
https://www.tax.service.gov.uk/guidance/paye-tax-calculator/start/type-of-tax-code

Pension annual 40200 so monthly 3350  Tax code SD0X  Monthly tax 703.50
Employment annual 43500  so monthly 3625  Tax code SK810X  Monthly tax 1248.30

Total tax 1951.80

If one single employment of 83700  on tax code of S1257L  tax due would be 1952.93  

This appears on the details given to be a close estimate of tax due on income details given going forward month by month.  There may be some under/over due on the earlier payments that will affect the final tax due figure at the year end and any changes in income could also affect the year end figure.

The X at the end of the code has nothing to do with emergency tax; it means that the tax code is applied at the time each payment is made with no reference to payments made before.