HMRC notification of tax code change

Baldeagle095

I understood the starting rate for savings (plus a ESA allowance) was £18,570. (see starting rate for savings on this site)   ESA c £7,254. Only other income was savings interest of c £3,500.  Total income for my partner being £10,754.

HMRC have notified her that 24/25 tax code will be 907

How wrong can they be? Even their own website on tax on savings interest states that you get your personal allowance (£12,570), starting rate for savings (£5,000) & personal savings allowance (£1,000). Total 18,570.

What should my partner do next?

[Deleted User]

Baldeagle095 said:

I understood the starting rate for savings (plus a ESA allowance) was £18,570. (see starting rate for savings on this site)   ESA c £7,254. Only other income was savings interest of c £3,500.  Total income for my partner being £10,754.

HMRC have notified her that 24/25 tax code will be 907

How wrong can they be? Even their own website on tax on savings interest states that you get your personal allowance (£12,570), starting rate for savings (£5,000) & personal savings allowance (£1,000). Total 18,570.

What should my partner do next?

So they have reduced the personal allowance by 3500 to 9070. There is still no tax to pay on the ESA. 

I wouldn’t worry about it. 

Baldeagle095

It is the principle. For 24/25 they will assess income as being £10,754 with a tax code of £9,070. My partner could be assessed on taxable income of £1,684.

In any event how does this tally with HMRC https://www.gov.uk/apply-tax-free-interest-on-savings 
And also MSE>Banking>Savings ??

Dazed_and_C0nfused

Baldeagle095 said:

It is the principle. For 24/25 they will assess income as being £10,754 with a tax code of £9,070. My partner could be assessed on taxable income of £1,684.

In any event how does this tally with HMRC https://www.gov.uk/apply-tax-free-interest-on-savings 
And also MSE>Banking>Savings ??

I think you have misunderstood a basic element of this.

The 0% tax bands (savings starter rate and savings nil rate (aka Personal Savings Allowance) can only be used once any available Personal Allowance has been used.

So someone with taxable ESA of £7,254 and taxable savings interest of £3,500 is not going to be able to use either of those rate bands.  

If a tax code of 907L is applied against ESA income of £7,254 precisely £0 tax would be deducted (although I don't think DWP would deduct any tax even if the code was lower to be honest)?

If by chance, her actual taxable income for 2025-26 turned out to be £10,754 then no tax would be payable as it is all covered by her Personal Allowance.

Baldeagle095

Pedantry to the extreme!
Why have they not applied their own rules? HMRC & MSE.
Why have they adjusted 24/25 tax code?

Dazed_and_C0nfused

Baldeagle095 said:

Pedantry to the extreme!
Why have they not applied their own rules? HMRC & MSE.
Why have they adjusted 24/25 tax code?

Honestly not sure what you are getting at.

It could be argued adjusting the tax code like that for someone with low income isn't really necessary and clearly does cause some confusion.

But the fact is your partner isn't going to benefit from either the savings starter rate band or the savings nil rate band.  With total taxable income of less than £11k they are totally irrelevant.

She isn't going to pay tax under PAYE and, unless she makes Gift Aid donations, wouldn't be sent a tax bill after the end of the year if her taxable income is less than £11k.

LITRG have some useful information regarding tax and interest.

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-savings-income

Sarahspangles

Baldeagle095 said:

I understood the starting rate for savings (plus a ESA allowance) was £18,570. (see starting rate for savings on this site)   ESA c £7,254. Only other income was savings interest of c £3,500.  Total income for my partner being £10,754.

HMRC have notified her that 24/25 tax code will be 907

How wrong can they be? Even their own website on tax on savings interest states that you get your personal allowance (£12,570), starting rate for savings (£5,000) & personal savings allowance (£1,000). Total 18,570.

What should my partner do next?

What HMRC have done is correct. Your partner could start a job tomorrow and incur tax which would be collected through PAYE - once ESA to date plus earnings exceeded their personal allowance. In this scenario, if HMRC didn’t take account of tax potentially due on savings interest, your partner could end up owing tax.

PAYE attempts to code so that the majority of people pay the correct amount of tax, but is only ever a provisional position until checks after the end of the tax year, when the tax bill is finalised.

In reality, there’s no impact from the change on your partner if they remain on ESA. And if they did have other income, once the personal allowance was used up they would benefit from the 0% bands for up to £18,570.

Baldeagle095

Thanks.
I think I understand!
HMRC have been slow to calculate her 2023/24 income - made up of ESA and unearned interest on savings.
This figure will be well below the personal allowance,starting rate for savings & personal savings allowance.
One slight complication is she received a very small pension which had tax deducted at source. I presume she will have the tax refunded at some stage.

[Deleted User]

Baldeagle095 said:

Thanks.
I think I understand!
HMRC have been slow to calculate her 2023/24 income - made up of ESA and unearned interest on savings.
This figure will be well below the personal allowance,starting rate for savings & personal savings allowance.
One slight complication is she received a very small pension which had tax deducted at source. I presume she will have the tax refunded at some stage.

Or she could ask HMRC to allocate sufficient personal allowance to cover it.

Albermarle

It could be argued adjusting the tax code like that for someone with low income isn't really necessary and clearly does cause some confusion.

OP- Best just to see it as a slightly quirky way of operating, but that in the end it will not mean you will pay more tax than you should, which is the important bit.

Dazed_and_C0nfused

Baldeagle095 said:

Thanks.
I think I understand!
HMRC have been slow to calculate her 2023/24 income - made up of ESA and unearned interest on savings.
This figure will be well below the personal allowance,starting rate for savings & personal savings allowance.
One slight complication is she received a very small pension which had tax deducted at source. I presume she will have the tax refunded at some stage.

Was this in the current tax year?

And will she expect to receive any further payments from this pension or was it a one off payment?