Adjusted tax code from HMRC

noclaf

I have received a new year gift from HMRC today notifying that my tax code will be adjusted to 257LX due to untaxed interest. HMRC have quoted a figure of around £3.5k, that figure will increase by end of 24-25 tax year.

For background, my income comes from two sources only: 1. PAYE job 2. Savings interest (referring to savings that are held outside of tax wrappers)

Question: Do I need to do anything at this point (assuming I can do anything)?
Or
Should I wait till end of the 24-25 tax year on the assumption that HMRC will review and adjust my tax code (if deemed as required) based on taxable income earned for the whole 24-25 tax year?

Bookworm105

HMRC is informed by banks etc of the interest they paid to you 
as such info is after the event, HMRC use that to estimate future interest and adjust your tax code for the following year accordingly

if you believe your circumstances will change so that last year is no longer a guide to next year you can ask for the estimate to be changed 
Tax codes: How to update your tax code - GOV.UK

Dazed_and_C0nfused

noclaf said:

I have received a new year gift from HMRC today notifying that my tax code will be adjusted to 257LX due to untaxed interest. HMRC have quoted a figure of around £3.5k, that figure will increase by end of 24-25 tax year.

For background, my income comes from two sources only: 1. PAYE job 2. Savings interest (referring to savings that are held outside of tax wrappers)

Question: Do I need to do anything at this point (assuming I can do anything)?
Or
Should I wait till end of the 24-25 tax year on the assumption that HMRC will review and adjust my tax code (if deemed as required) based on taxable income earned for the whole 24-25 tax year?

No you don't need to do anything.  You can do something if you think the estimate isn't as accurate as it could be.  Whether you think it is worth spending your time changing one estimate to another is only something you can answer.

Once the tax year ends the time for amending your code for untaxed interest has finished.  HMRC will review the actual position in the summer once they get details from banks and building societies.

If you have overpaid tax for 2024-25 they will notify you and refund any overpaid tax. 

If extra tax is due then the preferred option is for them to include the extra tax due in your 2026-27 tax code.  Although you can pay it direct if you prefer.

noclaf

Thanks both.
@Dazed_and_C0nfused - I think will just wait it out and let HMRC review over the summer.

noclaf

Op here, just wanted to revisit this and get some thoughts. Bear with me as my understanding of tax rules is not the best.

My January payslip now reflects the new tax code (changed from 1274L to 257L) and has resulted in a take-home pay reduction of more than £350 which is quite a hit.

I am somewhat frustrated as have been aggressively sal sac-ing into my work pension with the objective of ending the 24-25 tax year with taxable income + Savings interest = sub £100k...to avoid losing my personal allowance. 

I have 3 payments left that will be paid (PAYE salary) and I assume that each of those will be impacted in a similar way, by end of this week should have a full picture of my remaining taxable salary to be paid + calculate bank interest to be received till end of current tax year.  Is there anything else worth doing? Or as I previously decided just take the hit and let HMRC calculate if I am owed anything back (hoping I don't end up owing more tax!). 

For what it's worth I have a higher than normal amount of cash sat outside of tax wrappers so maybe should of seen this coming, am slowly moving it into tax wrappers and or depleting some of it but won't be resolved this year etc

TIA

eskbanker

noclaf said:

I am somewhat frustrated as have been aggressively sal sac-ing into my work pension with the objective of ending the 24-25 tax year with taxable income + Savings interest = sub £100k...to avoid losing my personal allowance. 

I have 3 payments left that will be paid (PAYE salary) and I assume that each of those will be impacted in a similar way, by end of this week should have a full picture of my remaining taxable salary to be paid + calculate bank interest to be received till end of current tax year.  Is there anything else worth doing? Or as I previously decided just take the hit and let HMRC calculate if I am owed anything back (hoping I don't end up owing more tax!). 

Just to be clear, adjustments to your coding don't affect the gross value of your taxable income, so won't hinder achieving your objective - PAYE deductions simply allow estimated liabilities to be met during the tax year rather than waiting until after it, but that total tax liability is based on your actual taxable income, regardless of when tax is collected from it....

noclaf

Thanks @eskbanker.... I will continue tweaking sal sac % into my work pension to manage the taxable income bit. I guess in ref to the savings interest that should come down as I utilise my S&SISA and maybe need to open a Ns&I AC etc etc

Would it be correct to assume that for the remainder of this tax year the same revised code will be applied to my salary including any ad-hoc one-off payments?

eskbanker

noclaf said:

I will continue tweaking sal sac % into my work pension to manage the taxable income bit. I guess in ref to the savings interest that should come down as I utilise my S&SISA and maybe need to open a Ns&I AC etc etc

Best not to guess but to model exactly how much interest you'll receive in taxable accounts between now and 5 April!  Moving funds to tax-free environments (assuming you specifically mean premium bonds rather than other NS&I products) should reduce that, but if you're trying to avoid reaching a specific threshold of taxable income, implying you're close to it, then your calculations need to be detailed, unless you use a wide margin of error.

noclaf said:

Would it be correct to assume that for the remainder of this tax year the same revised code will be applied to my salary including any ad-hoc one-off payments?

Seems a reasonable assumption, unless there's any reason to believe that any further changes will be happening?

noclaf

@eskbanker - Yes meant premium bonds. As you mentioned better if I can model it and add a buffer for safety/margin of error.

noclaf

This might be a basic/silly question but ..... 40% income tax can be offset using pension contributions, would it be correct that the same option is NOT available for offsetting savings interest? (Aside from sheltering the savings interest the first place using a tax efficient wrapper). For example Joe Blogs a 40% income tax payer receives £4k unwrapped savings interest...you can't retrospectively offer with a pension contribution?

eskbanker

noclaf said:

This might be a basic/silly question but ..... 40% income tax can be offset using pension contributions, would it be correct that the same option is NOT available for offsetting savings interest? (Aside from sheltering the savings interest the first place using a tax efficient wrapper). For example Joe Blogs a 40% income tax payer receives £4k unwrapped savings interest...you can't retrospectively offer with a pension contribution?

Surely suitable qualifying pension contributions will effectively reduce your taxable income regardless of where that's from?