Tax doubled this month?

Lellylion10

Hi - Hope someone can offer guidance. Before I attempt to call HMRC and hang on for hours!

My tax code in December was 1269L and tax was around £880 a month
Tax code change on January 9th to 1039L to accommodate untaxed savings interest for the year since April.

I was therefore expecting tax to increase by may be a couple of hundred to around the £1000 to £1100 mark. But I just got paid and its over £1700!

I can now see they changed the code again on 20th Jan to 1039LX after my employer did the pay run.

Does this mean next month I should get back that massive amount thats been overpaid? Or is it going to take another £1600 ish next month too?

Penguin_

What was your gross pay for the month?

Dazed_and_C0nfused

Lellylion10 said:

Hi - Hope someone can offer guidance. Before I attempt to call HMRC and hang on for hours!

My tax code in December was 1269L and tax was around £880 a month
Tax code change on January 9th to 1039L to accommodate untaxed savings interest for the year since April.

I was therefore expecting tax to increase by may be a couple of hundred to around the £1000 to £1100 mark. But I just got paid and its over £1700!

I can now see they changed the code again on 20th Jan to 1039LX after my employer did the pay run.

Does this mean next month I should get back that massive amount thats been overpaid? Or is it going to take another £1600 ish next month too?

The X isn't part of your tax code, it just signifies if the tax code is to be used on a cumulative (no X) or non-cumulative (with the X) basis.

Because the new code was operated on a cumulative basis to start with that meant any tax owed from April to January was collected all in one go in your January pay.

That is quite unusual for a high(ish) earner whose code has dropped from 1269L to 1039L.

The (small amount of) good news is that because it was collected all in one go you won't have that extra to pay next month.

If you put your expected February earnings into a tax calculator you should see a big reduction in tax compared to January.  Although still more tax to pay than December.

It's a bit long winded but you could try this one,

https://www.gov.uk/guidance/work-out-an-employees-income-tax

molerat

You will not be getting that money back via PAYE. The X suffix means the month is looked at stand alone without looking at the past year so will not correct any over or under payments.  The previous code took the monthly increased tax back for each of the past months.  It looks like the code without the X was in error and you need to contact HMRC to get the code sorted to correct the deduction.

The change from 1269 to 1039 should have resulted in extra tax of around £38 for a 20% tax payer to £76 for a 40% payer so it looks like they intended to deduct around £114 or £228 extra tax.

Lellylion10

Dazed_and_C0nfused said:

The X isn't part of your tax code, it just signifies if the tax code is to be used on a cumulative (no X) or non-cumulative (with the X) basis.

Because the new code was operated on a cumulative basis to start with that meant any tax owed from April to January was collected all in one go in your January pay.

That is quite unusual for a high(ish) earner whose code has dropped from 1269L to 1039L.

The (small amount of) good news is that because it was collected all in one go you won't have that extra to pay next month.

If you put your expected February earnings into a tax calculator you should see a big reduction in tax compared to January.  Although still more tax to pay than December.

It's a bit long winded but you could try this one,

https://www.gov.uk/guidance/work-out-an-employees-income-tax

Thank you!

So from this response..... it looks like they just took the underpayment for the entire year since April in one go, and it should return to normal in February... albeit a little higher due to the change to 1039 instead of 1269.

I can handle the larger chunk in January, so long as that doesn't continue to happen... and by them doing it in one go I guess it means I won't owe anything at the end of the year?

Dazed_and_C0nfused

Lellylion10 said:

Dazed_and_C0nfused said:

The X isn't part of your tax code, it just signifies if the tax code is to be used on a cumulative (no X) or non-cumulative (with the X) basis.

Because the new code was operated on a cumulative basis to start with that meant any tax owed from April to January was collected all in one go in your January pay.

That is quite unusual for a high(ish) earner whose code has dropped from 1269L to 1039L.

The (small amount of) good news is that because it was collected all in one go you won't have that extra to pay next month.

If you put your expected February earnings into a tax calculator you should see a big reduction in tax compared to January.  Although still more tax to pay than December.

It's a bit long winded but you could try this one,

https://www.gov.uk/guidance/work-out-an-employees-income-tax

Thank you!

So from this response..... it looks like they just took the underpayment for the entire year since April in one go, and it should return to normal in February... albeit a little higher due to the change to 1039 instead of 1269.

I can handle the larger chunk in January, so long as that doesn't continue to happen... and by them doing it in one go I guess it means I won't owe anything at the end of the year?

Yes and no.

It means you will owe less at the end of the year, or nothing.  Or could even be due a refund.

HMRC usually use the prior year figures for untaxed interest as an estimate.  So they have based your new tax code on an estimate of (total taxable) untaxed interest of say £2,000.

If your actual interest for 2024-25 isn't also £2,000 (which is unlikely but not impossible) then there could be settling up to do.

The one positive is that albeit not ideal (in fact quite unusual really) you are slightly ahead of the game now!

It might be worth checking with HMRC what really happened first time around, did they issue a cumulative code or did they issue a non-cumulative one and your employer didn't apply it correctly?

Your original post suggests you saw a cumulative code yourself, if that is the case then it very much looks like an issue at HMRC's end and not your employers error.  But ultimately you have just paid the tax currently believed to be due in one go, rather than over a longer period.

molerat

Lellylion10 said:

So from this response..... it looks like they just took the underpayment for the entire year since April in one go, and it should return to normal in February... albeit a little higher due to the change to 1039 instead of 1269.

I can handle the larger chunk in January, so long as that doesn't continue to happen... and by them doing it in one go I guess it means I won't owe anything at the end of the year?

They will owe you money.  It looks like they intended to take a total of (roughly) £228 tax owed at £76 per month over M10, 11 & 12.  Instead they took 10 times the monthly amount in Jan and will take it another 2 times in Feb and Mar.  If it is not corrected it will be the middle of next year before you get it back.

Lellylion10

Thanks Dazed_and_C0nfused

I'm going to double check with payroll here for their take on it. Then HMRC if needed.

The issue has come from inheritance - having never had savings before its an odd feeling!