Can a tax expert explain my PAYE tax code change?

dryriser

Thank you to everyone (and anyone) who is more informed on income tax, than I am. Please...

I was on 1257L on expected earnings of £108k for this tax year, ending Apr 25. But last month my tax code changed to 538TX, because of untaxed interest on £1,947 (net result for me was £260 less take home).

For the new financial year my tax code will be K59 with a total tax-free allowance amount of -£605.

I realise I will sound very stupid and maybe a bit irresponsible, but is there anyone who can explain this to me, to save me speaking to HMRC? 

Thank you kindly

Bookworm105

wow, how can you earn 100k and not know about the "60% tax trap"?
Income Tax rates and Personal Allowances : Current rates and allowances - GOV.UK

Grumpy_chap

dryriser said:

Thank you to everyone (and anyone) who is more informed on income tax, than I am. Please...

I was on 1257L on expected earnings of £108k for this tax year, ending Apr 25. But last month my tax code changed to 538TX, because of untaxed interest on £1,947 (net result for me was £260 less take home).

For the new financial year my tax code will be K59 with a total tax-free allowance amount of -£605.

I realise I will sound very stupid and maybe a bit irresponsible, but is there anyone who can explain this to me, to save me speaking to HMRC? 

Thank you kindly

If you expect your ANI to be in the range £108k to £110k, have you considered options to reduce the eventual ANI to below £100k?  Subject to the various constraints, additional pension contributions would be the most obvious and, at that range of ANI, each £10k added to the pension pot will only cost you £4k (or a bit less if SS is possible).  Assuming England. 

Dazed_and_C0nfused

dryriser said:

Thank you to everyone (and anyone) who is more informed on income tax, than I am. Please...

I was on 1257L on expected earnings of £108k for this tax year, ending Apr 25. But last month my tax code changed to 538TX, because of untaxed interest on £1,947 (net result for me was £260 less take home).

For the new financial year my tax code will be K59 with a total tax-free allowance amount of -£605.

I realise I will sound very stupid and maybe a bit irresponsible, but is there anyone who can explain this to me, to save me speaking to HMRC? 

Thank you kindly

I suspect you are missing some key facts.

The change to the 538T code is almost certainly a combination of at least three changes,

1.  (Provisionally) reduced Personal Allowance based on your expected adjusted net income for 2024-25
2.  A tax code deduction to collect tax on the interest HMRC have estimated you will receive in 2024-25
3.  A tax code deduction to collect extra tax which wasn't paid from April to when the tax code was changed.
NB.  It could be 3 hasn't been applied and the estimated tax due from 2024-25 will be included in your 2025-26 tax code.

The K59 code will be for similar reasons.

Two things you can do to help are make sure HMRC have accurate estimates of your earnings (expected P60 pay figure) and think about additional pension contributions.

Not many people like the 60% effective tax rate that kicks in when your Personal Allowance starts to be tapered down from £12,570.