Confused by new tax code

kidwell25

On 30 Dec 2024 I received a P800 notice saying that I had paid too little tax in 2023/24 (because my savings interest exceeded my personal savings allowance) and that I owed HMRC £841.88.

My tax code changed on 31 December (now beginning with the dreaded K). The accompanying letter also said that they estimate I have underpaid £1743 this tax year. So across 23/24 and 24/25 they think I have underpaid £2854

My January payslip deducted £751.59 more tax than usual.If that happens over a period of 3 months I’ll have paid an additional £2254 in tax by the end of March, which is about £600 short of the amount they think I owe. Does that sound like a mistake? The total tax taken in January was still quite a way off being 50% of my pre-tax salary (which I understand is the maximum tax they are permitted to deduct) so I don’t think that can be the reason.

Grateful for any clues.

eskbanker

It would help if you clarified what the tax code change actually was, i.e. before and after, in terms of establishing what it's aiming to collect during this tax year?  If you owe less than £1K from 2023/24 then this would usually be collected in 2025/26 rather than 2024/25....

molerat

What was the old code and what is the new code ?  Does the new code have an X suffix ?

Is their estimate of your 24-25 interest correct ?

kidwell25

Tax code was previously 1187L and changed to K1066.

And no, their estimate for 24-25 is actually way under, but I'm presuming that will all come out in the wash this time next year.

molerat

Assuming the K code has an X suffix then they are taxing an extra £1879 each month Jan to Mar which at 40% is £751.60 per month so all looks above board on that point.

But

Is the basis of their assumption correct ?

Are you going to receive in excess of £4800 interest this year ?

Or is there something else that has caused you to pay too little tax ?

kidwell25

I'm in the fortunate position that I'll likely make about 3 times that in interest in 24/25 so there's definitely going to have to be a massive adjustment next year, but I was just trying to work out how that tax code aligns to collecting £2854 before the end of this tax year. If it's trying to collect that whole amount it's around £600 short, and if it's *not* trying to collect the £841.88 from 23/24 then it's collecting too much. Hence I'm still puzzled!

eskbanker

Minor point of order - if the underpayments are £841 and £1743, that's £2584 not £2854!

molerat

These mid year changes are often a bit of a stab in the dark to attempt to get the correct end result.  If you are receiving in excess of £10K taxable interest you should be self assessing so it will sort itself in the end.