Adjusted tax code from HMRC

noclaf

eskbanker said:

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?

Right so that's the part I was unsure of.......it sounds as if assuming the sum of my taxable income from PAYE job + savings interest is kept below £100k then I would only incur 40% income tax and my personal allowance should not be impacted/reduced?

Dazed_and_C0nfused

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?

The correct answer is probably yes and no because a lot depends on the method used to make the pension contributions.

Relief at source contributions don't change your taxable income, they increase your basic rate band.  And reduce your adjusted net income so can mean you have more Personal Allowance available.

If you contribute via net pay (or can use salary sacrifice) then you have less taxable income.  So although you miss out on the pension tax relief you get with relief at source contributions, overall you get the same tax benefit really, just it all works out slightly differently.  

noclaf

@Dazed_and_C0nfused
My work pension uses salary sacrifice and my preference is to use that rather than my SIPP to receive the Tax+NI savings....I've slightly upped my salary sacrifice % for the next two months to hopefully avoid being whacked harder!

Dazed_and_C0nfused

noclaf said:

@Dazed_and_C0nfused
My work pension uses salary sacrifice and my preference is to use that rather than my SIPP to receive the Tax+NI savings....I've slightly upped my salary sacrifice % for the next two months to hopefully avoid being whacked harder!

Apart from for very low earners that is the most tax/NI efficient option and is also straightforward as HMRC aren't involved.

As far as your tax code is concerned if you post the breakdown of it it should be possible to explain what is happening.

Assuming it is being operated on a non cumulative basis then you won't notice any difference in the remainder of the the tax year (other than less taxable income form the extra salary sacrifice will obviously mean less tax is deducted).

noclaf

Dazed_and_C0nfused said:

As far as your tax code is concerned if you post the breakdown of it it should be possible to explain what is happening.

Thanks DandA, what numbers would be required to understand the above?

Dazed_and_C0nfused

noclaf said:

Dazed_and_C0nfused said:

As far as your tax code is concerned if you post the breakdown of it it should be possible to explain what is happening.

Thanks DandA, what numbers would be required to understand the above?

Just the breakdown of how 257L was arrived at.

Although reading the earlier posts I don't think this probably matters much as it is likely to be collecting extra tax but not too much.

noclaf

Dazed_and_C0nfused said:

noclaf said:

Dazed_and_C0nfused said:

As far as your tax code is concerned if you post the breakdown of it it should be possible to explain what is happening.

Thanks DandA, what numbers would be required to understand the above?

Just the breakdown of how 257L was arrived at.

Although reading the earlier posts I don't think this probably matters much as it is likely to be collecting extra tax but not too much.

Which period are tax code changes related to savings interest e.g: typically previous tax year or current...or can it be any as chosen by HMRC?

Dazed_and_C0nfused

noclaf said:

Dazed_and_C0nfused said:

noclaf said:

Dazed_and_C0nfused said:

As far as your tax code is concerned if you post the breakdown of it it should be possible to explain what is happening.

Thanks DandA, what numbers would be required to understand the above?

Just the breakdown of how 257L was arrived at.

Although reading the earlier posts I don't think this probably matters much as it is likely to be collecting extra tax but not too much.

Which period are tax code changes related to savings interest e.g: typically previous tax year or current...or can it be any as chosen by HMRC?

The normal way it works is over a 3 year cycle.

Year 1, say 2023-24, HMRC use the 2022-23 interest details as an estimate of what to include in your tax code.

Year 2, 2024-25, HMRC get the actual interest details for 2023-24 from the banks and check if there is any extra tax to pay or any refund due for 2023-24 (overall, not just on the interest).  They usually also update the current tax code, using the info from 2023-24 as the new estimate of expected interest.

Year 3, 2025-26, any extra tax owed for 2023-24 is included in your tax code and paid off over 12 months.

There will always be exceptions to the above, some people like to interfere and give their own figures, others no longer have a code that can collect extra tax, but it works like that for lots of people.

Alfie2020

I have just received an email from HMRC saying they have changed my tax code as from today due to interest from savings.  I have not received a P800 letter (paper or online) so this is the first I knew of it.  I would prefer to pay any underpaid tax rather than have a mess with my tax code.  How do I sort this mess?  I have checked my online account and there is no letter on there since 2021 so I've not missed anything. 

eskbanker

Alfie2020 said:

I have just received an email from HMRC saying they have changed my tax code as from today due to interest from savings.  I have not received a P800 letter (paper or online) so this is the first I knew of it.  I would prefer to pay any underpaid tax rather than have a mess with my tax code.  How do I sort this mess?  I have checked my online account and there is no letter on there since 2021 so I've not missed anything. 

They're presumably adjusting your code for 2024/25 on the assumption that your savings interest in the current year will be the same as last year, so the P800 assessment for 2023/24 doesn't really form part of that process.  Can you access your coding breakdown in your online account?