Simple Assessment Tax Calculation - Outstanding Tax from Previous Tax Year

JustRaider

I have received a simple assessment calculation letter from HMRC which states I need to pay around £4,000 by the 1 January 2025. This outstanding tax relates to the previous tax year. The explanation for receiving the simple assessment was :

"The actual Marriage Allowance you were given was more than the allowance you were due"

Apparently my gross income in the previous tax year was over the higher tax threshold of £50,270 by around £10, so I lost my Marriage tax allowance. The high income was due to cashing in my pension to raise money for a family members house purchase. Since April of this year I have been paying extra tax on my other pension to cover this previous years tax amount. I estimate this is around £1,000. Would this amount be taken into consideration towards the payment of the previous years outstanding tax ?

I have no way of paying off this large amount of outstanding tax by the year end, so I am really worried. Is it difficult to arrange a longer period of time to pay the money back ?

moedeeb

Transfer of marriage tax allowance only saves a couple of hundred pounds so losing it won’t mean a tax bill of 4 K.

To understand what is happening give more info about which tax years you are referencing and the taxable earnings and pension payments involved. 
 

Dazed_and_C0nfused

moedeeb said:

Transfer of marriage tax allowance only saves a couple of hundred pounds so losing it won’t mean a tax bill of 4 K.

To understand what is happening give more info about which tax years you are referencing and the taxable earnings and pension payments involved. 
 

Although It only saves someone £252 when it's included in their tax code and then ultimately they aren't eligible that usually means owing tax of ~£504, not £252

But clearly there is more to this than just Marriage Allowance!

eskbanker

JustRaider said:

Since April of this year I have been paying extra tax on my other pension to cover this previous years tax amount. I estimate this is around £1,000. Would this amount be taken into consideration towards the payment of the previous years outstanding tax ?

I don't really understand what you mean by "paying extra tax on my other pension to cover this previous years tax amount" - if you mean that the PAYE coding has been adjusted on the assumption that your 2024/25 income would be in the same ballpark as the inflated figure in 2023/24, that extra tax would be towards your 2024/25 liabilities, not those of 2023/24, so the answer to your question is 'no'.  If you ended up overpaying tax as a result of that, this would be refunded once your 2024/25 income is assessed, but that's nothing to do with your 2023/24 liability.

Dazed_and_C0nfused

eskbanker said:

JustRaider said:

Since April of this year I have been paying extra tax on my other pension to cover this previous years tax amount. I estimate this is around £1,000. Would this amount be taken into consideration towards the payment of the previous years outstanding tax ?

I don't really understand what you mean by "paying extra tax on my other pension to cover this previous years tax amount" - if you mean that the PAYE coding has been adjusted on the assumption that your 2024/25 income would be in the same ballpark as the inflated figure in 2023/24, that extra tax would be towards your 2024/25 liabilities, not those of 2023/24, so the answer to your question is 'no'.  If you ended up overpaying tax as a result of that, this would be refunded once your 2024/25 income is assessed, but that's nothing to do with your 2023/24 liability.

They might be referring to an In Year Adjustment, relatively new in the PAYE world and something which can end up in the next tax year.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye90025

JustRaider

The tax year of the outstanding tax is 2023-2024.

When I cashed in my pension in tax year 2023-2024 my pension provider used a default tax code.

This resulted in a underpayment of tax of around £3,500.

moedeeb

Sorry to sound blunt but you appear to have robbed your future self of a proportion of your pension and probably paid more tax than if you had planned ahead more efficiently. It looks like a very expensive way of helping out family members. 

Dazed_and_C0nfused

JustRaider said:

The tax year of the outstanding tax is 2023-2024.

When I cashed in my pension in tax year 2023-2024 my pension provider used a default tax code.

This resulted in a underpayment of tax of around £3,500.

From what you have posted I would expect the issue of a Simple Assesment calculation to result in your current tax code being adjusted so it no longer includes the underpayment element relating to 2023-24.

The whole of the extra liability for 2023-24 will be encompassed in the Simple Assessment calculation, I don't believe it can be part Simple Assessment and part in this year's tax code.

Have you checked your Personal Tax Account to see if a new code has been calculated?

JustRaider

Yes, on checking my tax code on my Personal account - For this current tax year for my pension the tax code has changed from 
a K code to an L code. So yes, your assumption is correct.

Dazed_and_C0nfused

JustRaider said:

Yes, on checking my tax code on my Personal account - For this current tax year for my pension the tax code has changed from 
a K code to an L code. So yes, your assumption is correct.

Providing the new code has been issued on a cumulative basis (which is highly likely for a change from K to L code) then the employer or pension payer using the new code will make any adjustment/refund due the first time they operate the new code.

And you will pay less tax each payday going forward for the rest of the current tax year.

Their payroll software will do this automatically, you don't need to query it with them.