Adjusted tax code from HMRC

Dazed_and_C0nfused

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. 

I'm not entirely sure you can do anything to prevent this.

You can certainly pay any tax due for 2023-24 direct to HMRC once they issue you with the calculation for that year.

But the tax code you have recently received for 2024-25 is simply a provisional attempt to collect the correct tax for 2024-25 withing the tax year itself.  This is quite normal and is how PAYE has worked for a very long time.

If you call HMRC they might agree to remove the interest element from your tax code (which would in turn reduce any estimated underpayment for the current tax year that is also in your new tax code).

But that is putting you at an advantage over people who are paying during the year.

If you know the interest amount they have used as the estimate for this tax year is more than the interest you expect to receive in 2024-25 then that's a different ball game and should be (relatively) easily rectified.

Alfie2020

Thanks.  I managed to speak to a human this morning and was completely confused by them.  They are saying I owe money from 23/24 tax year and changing the tax code to cover that but I have no figures etc to check what they are basing that one.  I have requested that they don't change the tax code and send me the figures/P800 so that I can get things straight.  They have said they will do that.  The message about the tax code change has disappeared from my online account but there are still no figures.  I have warned by employer about it.  They couldn't tell me why a P800 wasn't sent out.  It will take about 10 days for that to come through apparently.  Online it is showing that they haven't calculated the 23/24 figures yet.  The online account is all well and good but it has little information on there to explain or for me to check.

noclaf

Just circling back on this (OP), I was looking at the breakdown of my tax-free amount on gov gateway and the 'how' they have calculated deductions confuses me, will post here and would appreciate if anyone can help me to understand it better:

Tax free amount 6 April to 5 April 2025:
£2578.00

How it's been calculated by HMRC:
Personal allowance £12,570.00
Personal pension payments £2,044.00
Total additions £2,044.00

Deductions:
Underpayment from previous year: You underpaid £375 tax in a previous tax year (deduction = £939)

Estimated tax you owe this year We estimate you have underpaid £780 tax (deduction = £7571)

Untaxed interest on savings and investments £3526.00 (same amount deducted)

Total deductions £12,036.00
Your total tax-free amount £2,578.00

I don't understand why the respective deductions of £939 and £7571 are larger than the underpayment amounts quoted? In the case of the latter it's a significant difference..why is the deduction £7571 Vs £780 underpayment? It could be my lack of understanding so bear with me on this!
I've lost most of my personal allowance which I didn't expect. The untaxed interest is likely to be a reasonable estimate....will probably go above that this tax year and need to work out a better strategy to manage that in the 25/26 tax year.

Dazed_and_C0nfused

Deductions:

Underpayment from previous year: You underpaid £375 tax in a previous tax year (deduction = £939)

Estimated tax you owe this year We estimate you have underpaid £780 tax (deduction = £7571)

So the underpayment from a previous tax year was presumably present from the start of the current tax year. So £939 deduction which results in extra 40% tax being deducted collects an extra £375.60

The estimated tax you owe this year will have been added part way through the current tax year.  So a bigger deduction is needed to collect that tax.  £7,571 which results in extra 40% tax being deducted would be £3,028.  But if that £7,571 was in place for the last ~13 weeks of the tax year it would mean that only 13/52nds of £3,028 would be collected.  Which is roughly £780.

Also, you haven't lost any of your Personal Allowance, it is still included, in full, in the tax code.

noclaf

Thanks D and C, still unsure how to interpret as 'tax free amount' is reduced though you mention I haven't lost any of my personal allowance?
Also why are £7571 and £939 quoted as deductions if the actual deduction is only the tax element? 

Is there a way I can offset any of these deductions in the current tax year using pension contributions? I have a work pension (salary sacrifice) and a SIPP, tend to prefer using the former to get the NI saving too but aware not much time left in this tax year.

Dazed_and_C0nfused

noclaf said:

Thanks D and C, still unsure how to interpret as 'tax free amount' is reduced though you mention I haven't lost any of my personal allowance?
Also why are £7571 and £939 quoted as deductions if the actual deduction is only the tax element? 

Is there a way I can offset any of these deductions in the current tax year using pension contributions? I have a work pension (salary sacrifice) and a SIPP, tend to prefer using the former to get the NI saving too but aware not much time left in this tax year.

You are conflating two things.

You referred to your Personal Allowance.  That has not changed, it is clearly shown on the make up of the tax code you yourself have posted.

How it's been calculated by HMRC:

Personal allowance £12,570.00

Your tax code allowances, something completely different to your Personal Allowance, have presumably been reduced.  Although you don't say what the previous tax code was so they could actually have increased.

The deductions for unpaid tax are larger as that is what is needed to collect those amounts.
Reducing your tax code allowances by £939 for a full tax year will, assuming you are a higher rate payer on your earnings/pension, mean your employer or pension payer will collect an extra £375 in tax.  £939 x 40% = £375.60

Extra pension contributions may well reduce your overall liability but they won't necessarily impact your tax code.  You would need to provide a lot more information to be able to understand that.

I presume you realise a tax code is only ever provisional, the actual tax position is always reviewed once the tax year has finished.  If you overpay you will get a refund.  Likewise if you underpay you will need to make up the difference.

noclaf

Thanks D and C, make sense. It is indeed the distinction between personal allowance and tax allowance that I found confusing.

Assuming my total taxable income + total savings interest received for 24-25 tax year does not exceed £100k (let's say £99k to be on safe side!) then assume my personal allowance will not be impacted?

Dazed_and_C0nfused

noclaf said:

Thanks D and C, make sense. It is indeed the distinction between personal allowance and tax allowance that I found confusing.

Assuming my total taxable income + total savings interest received for 24-25 tax year does not exceed £100k (let's say £99k to be on safe side!) then assume my personal allowance will not be impacted?

Correct.

Your Personal Allowance is based on adjusted net income.

Which for most people is likely to be the sum of all taxable income (including any taxed at 0%) with relief at source pension contributions and Gift Aid donations deducted.

You cannot deduct either net pay or salary sacrifice pension contributions.

noclaf

Thanks again D and C...all very helpful.

Dazed_and_C0nfused

I should have said, the reason you cannot deduct salary sacrifice contributions is twofold, firstly they are actually employers contributions so not something you can claim as a pension contribution you made.

But more importantly they are already deducted when determining your taxable pay so you would be double counting them.