Unsure if I have overpaid tax

Beckoboy

Hi all,
Basically I have received a tax bill bill from the tax office stating I have underpaid. 
I receive a drawdown to pay my mortgage at a rate off £1250 a month this includes £250 tax at 20%
So last year I took out an extra £5000 this also included £1000 tax at 20%.
This equates too £20,000 for the year less the £4,000 tax I received £16,000.
My yearly wages accumulated to £34,000 before tax...
The tax office added these two figures together which came too £54,000..
Off which they taxed me again saying I gone over the 20% threshold..I'm struggling to understand how I pay tax..then get calculated before I paid tax..is the tax office correct ..any advice please is much appreciated thankyou in advance. 

MattMattMattUK

Beckoboy said:

Hi all,
Basically I have received a tax bill bill from the tax office stating I have underpaid. 
I receive a drawdown to pay my mortgage at a rate off £1250 a month this includes £250 tax at 20%
So last year I took out an extra £5000 this also included £1000 tax at 20%.
This equates too £20,000 for the year less the £4,000 tax I received £16,000.
My yearly wages accumulated to £34,000 before tax...
The tax office added these two figures together which came too £54,000..
Off which they taxed me again saying I gone over the 20% threshold..I'm struggling to understand how I pay tax..then get calculated before I paid tax..is the tax office correct ..any advice please is much appreciated thankyou in advance. 

The higher rate of income tax applies on income over £50,271 and up to £125,140, so therefore £3,729 of your income should have been taxed at 40% not 20%, so you owe and additional £745.80.

penners324

You've gone over the 40% threshold so extra 20% due on that amount over the threshold 

sheramber

You paid tax at 20% on your drawdown but when added to your salary  the total amount exceeds the 20%  rate band, so the extra is charged at 40%.

As you have already paid tax at 20% you are now due to pay an additional 20% on that extra amount of £3729.

saajan_12

Beckoboy said:

Hi all,
Basically I have received a tax bill bill from the tax office stating I have underpaid. 
I receive a drawdown to pay my mortgage at a rate off £1250 a month this includes £250 tax at 20%
So last year I took out an extra £5000 this also included £1000 tax at 20%.
This equates too £20,000 for the year less the £4,000 tax I received £16,000.
My yearly wages accumulated to £34,000 before tax...

What you used the money for is irrelevant. You received a total gross income of £20k + 34k = £54k. That should partly go into your personal allowance, then 20% tax, and then 40% for the top bit.  

Beckoboy said:

The tax office added these two figures together which came too £54,000..
Off which they taxed me again saying I gone over the 20% threshold..I'm struggling to understand how I pay tax..then get calculated before I paid tax..is the tax office correct ..any advice please is much appreciated thankyou in advance. 

What is wrong with what they are saying? You need to add up the tax paid (all at 20%) vs tax owed (partly at 40%). Then pay any excess either directly to HMRC or via a tax code change on your future salary. If you pay tax at a lower rate than you owe, then you do get credit for that payment but still have to pay the remainder..

Beckoboy

Yes I get it now thankyou very much for the clear explanations.
For some strange reason I wrongly assumed that my pension would declare an aftertax payment..it was definitely a nice thought at the time haha..thankyou once again all .

Dazed_and_C0nfused

The calculation should be correct based on what HMRC know.

But if you have made any relief at source pension contributions in that tax year then they might reduce your underpayment.