PAYE v Self Assessment

poppystar

Just want to get my head around how HMRC thinks….

I have my tax code for next year 25/26 a reduction from K2239 to K1239 so I take it from that that I will have more money in my pay each month. Very welcome.

I started Self Assessment from 23/24. 

The new coding includes an estimate of taxable interest. This is less than the current or past years actual values. I presume then that they are expecting the remainder to be taxed via Self Assessment at the year end. 

How do HMRC decide the amount to tax via PAYE and the amount to be collected later via Self Assessment? 

Thanks. 

Bookworm105

they assume previous year will continue as before unless you notify them something has changed or their own info suggests different figures are needed.

for tax on interest they may be working on the basis interest rates reduced, so you will not have such a large untaxed interest figure as the previous year.

poppystar

They clearly aren’t assuming the previous years situation continues as they’ve reduced the tax due on interest by far more than any drop in the interest rates would result in. Which is what is somewhat confusing. It’s not a long term problem as obviously it’ll be sorted when I come to do the self assessment for that year. I’m just curious as to their rationale behind putting some of the tax on interest into the tax coding and the remainder to be picked up by SA. 

Dazed_and_C0nfused

poppystar said:

They clearly aren’t assuming the previous years situation continues as they’ve reduced the tax due on interest by far more than any drop in the interest rates would result in. Which is what is somewhat confusing. It’s not a long term problem as obviously it’ll be sorted when I come to do the self assessment for that year. I’m just curious as to their rationale behind putting some of the tax on interest into the tax coding and the remainder to be picked up by SA. 

Is it the interest figure from 2022-23 that is being used?

You can see the total (not the tax code deduction) for your 2024-25 tax code if you delve deep enough into your Personal Tax Account.  Look for something called View Detailed Income Tax Estimate.

If the tax deduction for 2024-25 and 2025-26 are the same chances are the same total has been used as well.

poppystar

Dazed_and_C0nfused said:

poppystar said:

They clearly aren’t assuming the previous years situation continues as they’ve reduced the tax due on interest by far more than any drop in the interest rates would result in. Which is what is somewhat confusing. It’s not a long term problem as obviously it’ll be sorted when I come to do the self assessment for that year. I’m just curious as to their rationale behind putting some of the tax on interest into the tax coding and the remainder to be picked up by SA. 

Is it the interest figure from 2022-23 that is being used?  No, that was a much lower figure, hence not starting the self assessment route until 23/24. 

You can see the total (not the tax code deduction) for your 2024-25 tax code if you delve deep enough into your Personal Tax Account.  Look for something called View Detailed Income Tax Estimate. Will try and have a deeper dive tomorrow, thanks. I know the figure they initially used for 24/25 tax coding was too low (seemed to be based on 22/23) and was later changed once I registered for self assessment for 23/24. Hence the very high K code I’ve had for the past few months. The figure on this latest tax coding for 25/26 is much more than the previous figures being used by them but less than the actual for 23/24. The fact that it is in excess of £10k means they must know I’ll still need to self assess too. To be clear I’m talking about the taxable interest figure here the pension estimates are fine and have only changed by the annual increases. 

I vaguely recall from other threads on here that there might be a cap of some sort on what they can collect via PAYE. Could this be what is happening? How do they work that out? 

If the tax deduction for 2024-25 and 2025-26 are the same chances are the same total has been used as well.

Thanks again