Help understanding tax code calculation

PeskyBlunder

I've just received notification of my tax code for 2025/26 but something I don't understand is this:

"Note 4 Tax you owe (earlier year)

We previously told you that you owe £360 tax from an earlier tax year. We have therefore included an adjustment to reduce your tax-free allowance by £1333 so we can collect the £360 tax in equal instalments."

I agree that I owe the £360 but I'm at a loss to understand where the figure £1333 comes from. This results in a K76 tax code by the way.

If it's relevant, I should point out that my estimated untaxed interest (£2158) pushes me into the higher rate band.

Dazed_and_C0nfused

PeskyBlunder said:

I've just received notification of my tax code for 2025/26 but something I don't understand is this:

"Note 4 Tax you owe (earlier year)

We previously told you that you owe £360 tax from an earlier tax year. We have therefore included an adjustment to reduce your tax-free allowance by £1333 so we can collect the £360 tax in equal instalments."

I agree that I owe the £360 but I'm at a loss to understand where the figure £1333 comes from. This results in a K76 tax code by the way.

If it's relevant, I should point out that my estimated untaxed interest (£2158) pushes me into the higher rate band.

It is likely to be because your liability straddles the basic and higher rate threshold.

£1,333 x 20% = £266
£1,333 x 40% = £533
£1,333 x a mix of 20% and 40% = £360

If you provide full details of the tax code and the estimated earnings/pension HMRC have used it should be possible to explain the actual way it has been calculated.

PeskyBlunder

Thank you very much for the prompt reply - I suspected that it may be something like that but I don't understand how they do the split . Here are the other figures:

Personal allowance = 12570

Less state pension = 9853

Less untaxed interest = 2158

Less adjustment for tax you owe = 1333

774 to be added to wages/salary/pension (pension in my case)

Dazed_and_C0nfused

And what is the estimate of the pension the code will be used against?

PeskyBlunder

Hmm - they don't say this - do they just assume it's the same as the current year?

Dazed_and_C0nfused

When you check your next year's code on your Personal Tax Account you should see a section like this.

You can update your estimated income from employment or pensions for next year. This will update the estimate that we will base next year’s tax on.

Employer or pension
Current tax year ends 5 April 2025 £x
Next tax year from 6 April 2025 £y

PeskyBlunder

Thanks for your help Dazed_and_C0nfused - I'll have a look.

Dazed_and_C0nfused

I suspect it will be based on 

£467 at 40% plus £866 at 20%

AbleSeaman954

Does anyone here think that HMRC are inflating the Estimated elements of the Tax Code in order to tax us more only to have to reimbuse us in 2026/27 tax year. I have had so many revised Tax Code notifications my head is spinning.

eskbanker

AbleSeaman954 said:

Does anyone here think that HMRC are inflating the Estimated elements of the Tax Code in order to tax us more only to have to reimbuse us in 2026/27 tax year.

Seems highly unlikely IMHO - why would they generate more work for such minimal gain?  What makes you think any of your figures are inflated?