Can HMRC take money out of my wages?

molerat

So your allowance has gone from -£460 to +£870, a difference of £1330, which would increase the basic rate band, maybe because paying 40% tax would collect too much.  How the code is arrived at will be shown in your tax account.  Likely they have reviewed your income and what you owe.  Your code is just a way of trying to deduct the correct amount of tax by the end of year and can be pretty fluid if there is a debt.

DaffyDuck316

Wow, thank you for your response molerat!

Paying 40% would collect too much? When I saw I might hit the 40% bracket, when I normally don't hit it, I had assumed that HMRC would be unfairly collecting more taxes than I would normally pay (I hope that makes sense)

It feels like I have misread that situation and also freaked out when half my salary was taken from two paychecks.

I still don't understand why they have swooped in for the debt when they posted a letter with a plan to recoup the debt, but if it is a new tax year, well I can only hope they stick to what closely resembles the original lettered plan.

penners324

You add £37700 to your tax code and 40% over that.

sheramber

Is the underpayment being collected  this year the same underpayment as in the payment plan or is it for a different year? 

[Deleted User]

DaffyDuck316 said:

Wow, thank you for your response molerat!

Paying 40% would collect too much? When I saw I might hit the 40% bracket, when I normally don't hit it, I had assumed that HMRC would be unfairly collecting more taxes than I would normally pay (I hope that makes sense)

It feels like I have misread that situation and also freaked out when half my salary was taken from two paychecks.

I still don't understand why they have swooped in for the debt when they posted a letter with a plan to recoup the debt, but if it is a new tax year, well I can only hope they stick to what closely resembles the original lettered plan.

Are you now aware that 40% kicks in on income over £50270 - that’s the personal allowance of £12570 plus basic rate band £37700!

DaffyDuck316

Hmm....How can I answer your question without sounding like a complete moron?

I'll just be honest. I did know this last year, but foolishly I double checked what it was at the start of the year and I wasn't paying attention. I misread it to be 57,700. I shall be cutting down on my overtime for this tax year haha.

Does that work out fairly in the end.

Say I owe £2000
Would that mean my personal tax-free allowance would be reduced by £10000
Then on my income I will likely be taxed at 40% instead of 20% for £10000
That would mean paying an extra £2000 in tax altogether which is what I owe 

But haven't I lost the tax free allowance £10000 where I would have been taxed at 0%?

I still can't get my head around itsheramber said:

Is the underpayment being collected  this year the same underpayment as in the payment plan or is it for a different year? 

The underpayment being collected is for a different year, thankfully there are no other years owing money

[Deleted User]

DaffyDuck316 said:

Hmm....How can I answer your question without sounding like a complete moron?

I'll just be honest. I did know this last year, but foolishly I double checked what it was at the start of the year and I wasn't paying attention. I misread it to be 57,700. I shall be cutting down on my overtime for this tax year haha.

Does that work out fairly in the end.

Say I owe £2000
Would that mean my personal tax-free allowance would be reduced by £10000
Then on my income I will likely be taxed at 40% instead of 20% for £10000
That would mean paying an extra £2000 in tax altogether which is what I owe 

But haven't I lost the tax free allowance £10000 where I would have been taxed at 0%?

I still can't get my head around itsheramber said:

Is the underpayment being collected  this year the same underpayment as in the payment plan or is it for a different year? 

The underpayment being collected is for a different year, thankfully there are no other years owing money

You are kind of right but overthinking at the same time. 

To collect an extra £2000 in tax HMRC will reduce your code number by £10000 if you are a basic rate taxpayer. An extra 10000 will attract tax of £2000.

If the adjustment results in at least £5000 at 40%, the personal allowance will be restricted by £5000. This would mean £7270 personal allowance, £37700 at 20% and £5000  more at 40%. 

For example - £50270 of income. Normally - £12570 personal allowance, £37700 at 20% - tax due £7540.

If Code restricted by £5000 on same income.

£7570 tax free, £37700 at 20%, £5000 at 40% -  tax due £9540.. 

DaffyDuck316

Ahhhhh, the personal allowance will be restricted.

I had a feeling that everything would work out fairly otherwise we'd be hearing people kicking off about it quite a lot.

But it's good to have the understanding. If I had tried to understand my situation before I probably wouldn't have ended up owing money back.