Tax code changes - Looking to make some sense

n15h

Hi all, I received a tax code notice in January 2025 and another tax code notice a few days. I'm trying to make sense of both of notices and understand them, especially the adjustment for tax amounts. If anyone could please help, that's much appreciated.

January 2025 tax code notice - for 6 April 2024 to 5 April 2025
Personal allowance £12570
Job expenses £312
Total £12882
Less benefits in kind £310
Less untaxed interest £1161
Total tax-free amount £11411
Estimated tax owe (this year) £193.40
Tax code 1141L X replaces 1257L

March 2025 tax code notice - for 6 April 2025 to 5 April 2026
Personal allowance £12570
Total £12570
Less benefits in kind £310
Less untaxed interest £1161
Less Adjustment for tax you owe (earlier year) £967
Total tax-free amount £10132
Tax code 1013L

The notes in the Jan 2025 notice says that due to an in year adjustment to your tax code we think that you will owe HRMC £193.40. We will therefore include an adjustment to reduce your tax-free allowance to collect the £193.40 in equal instalments by increasing the tax deducted from your wage, salary or pension from 6 April 2025.

My simple sums are £193.40 + £967 = £1160.40 i.e., close to the £1161 untaxed interest. I believe the interest I earned in 2024-25 tax year is above the PSA £1,000 but I don't know the exact figure. I'm thinking HRMC have got information that the total interest equates to £2161. I'm basing this on £1161 untaxed interest + £1000 PSA = £2161 (if I've got this wrong, please let me know).

I'm trying to understand that why has the adjustment increased to £967 in the March 2025 notice, when the Jan 2025 notice says the tax owed is £193.40, which has further reduced the tax free allowance / tax code for 2025-26?

There also seems to be an assumption made that for 6 April 2025 to 5 April 2026, there is untaxed interest of £1161, and the tax code allowance has been reduced this amount even though the 2025-26 tax year has not started.

Hoping someone here who has more knowledge, can help me better understand this and suggest any steps I need to take to rectify.

Thank you.

eskbanker

How much did you earn from savings interest in 2023/24 (which will be provisionally assumed to be the same in following years)?

How much income did you receive from other sources?

Dazed_and_C0nfused

n15h said:

Hi all, I received a tax code notice in January 2025 and another tax code notice a few days. I'm trying to make sense of both of notices and understand them, especially the adjustment for tax amounts. If anyone could please help, that's much appreciated.

January 2025 tax code notice - for 6 April 2024 to 5 April 2025
Personal allowance £12570
Job expenses £312
Total £12882
Less benefits in kind £310
Less untaxed interest £1161
Total tax-free amount £11411
Estimated tax owe (this year) £193.40
Tax code 1141L X replaces 1257L

March 2025 tax code notice - for 6 April 2025 to 5 April 2026
Personal allowance £12570
Total £12570
Less benefits in kind £310
Less untaxed interest £1161
Less Adjustment for tax you owe (earlier year) £967
Total tax-free amount £10132
Tax code 1013L

The notes in the Jan 2025 notice says that due to an in year adjustment to your tax code we think that you will owe HRMC £193.40. We will therefore include an adjustment to reduce your tax-free allowance to collect the £193.40 in equal instalments by increasing the tax deducted from your wage, salary or pension from 6 April 2025.

My simple sums are £193.40 + £967 = £1160.40 i.e., close to the £1161 untaxed interest. I believe the interest I earned in 2024-25 tax year is above the PSA £1,000 but I don't know the exact figure. I'm thinking HRMC have got information that the total interest equates to £2161. I'm basing this on £1161 untaxed interest + £1000 PSA = £2161 (if I've got this wrong, please let me know).

I'm trying to understand that why has the adjustment increased to £967 in the March 2025 notice, when the Jan 2025 notice says the tax owed is £193.40, which has further reduced the tax free allowance / tax code for 2025-26?

There also seems to be an assumption made that for 6 April 2025 to 5 April 2026, there is untaxed interest of £1161, and the tax code allowance has been reduced this amount even though the 2025-26 tax year has not started.

Hoping someone here who has more knowledge, can help me better understand this and suggest any steps I need to take to rectify.

Thank you.

The deduction of £967 is to collect £193.40 (you will pay 20% tax on an extra £967 of your earnings, 967 x 20% = 193.40).

HMRC normally use the latest information available as an estimate.  So your £2,161 interest with £1,000 taxed at 0% and £1,161 at 20% is likely to be correct.

NB.  You can see the total they have used in your Personal Tax Account, find the View detailed income tax estimate page.

You can provide a more accurate figure if you think £2161 is too much for 2025-26.

Albermarle

There also seems to be an assumption made that for 6 April 2025 to 5 April 2026, there is untaxed interest of £1161, and the tax code allowance has been reduced this amount even though the 2025-26 tax year has not started.

The idea of a tax code is that it is an attempt to collect the correct amount of tax from you, so hopefully there will be no need for rebates/ extra tax requests later.
So their default position for many items is to assume your circumstances will not change from one tax year to the next. I do not think they have much choice to do otherwise, unless specifically informed of a change in interest, income etc.

n15h

Thanks everyone for your responses.

@eskbanker - I don't know the exact figure of savings interest in 2023/24 but I do believe it is above the £1000 PSA. I'll go through my paperwork this weekend to work it out.

@Dazed_and_C0nfused - Thanks, I'll find the detailed income tax estimate page and hopefully that will help. This is the first time I have received tax code notices so they're new to me and I want to make sure I understand them correctly. Majority of my savings will be in ISAs in the new tax year (after the ISA allowances reset in April 2025 as have utilised the 2024/25 allowance), so am hopeful that for 2025/26 there will be minimal interest outside of an ISA wrapper which should be within the £1000 PSA.

@Albermarle - Thanks, I thought they are just making an assumption but your explanation helped me to understand the approach they take. There will certainly be a change of interest as my savings will be fully ISA wrapped in 2025/26.

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

Sarahspangles

n15h said:

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

HMRC never know about the ISAs (or the interest) in the first place, as they don’t require banks and building societies to report non-taxable interest to them.

flaneurs_lobster

Sarahspangles said:

n15h said:

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

HMRC never know about the ISAs (or the interest) in the first place, as they don’t require banks and building societies to report non-taxable interest to them.

If that is so, how would HMRC ever become aware of someone who had subscribed more than £20k in a year?

DRS1

I think they get told who has subscribed and how much in a tax year (but the interest is irrelevant)

Nomunnofun1

flaneurs_lobster said:

Sarahspangles said:

n15h said:

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

HMRC never know about the ISAs (or the interest) in the first place, as they don’t require banks and building societies to report non-taxable interest to them.

If that is so, how would HMRC ever become aware of someone who had subscribed more than £20k in a year?

I know that, years ago, an ISA provider requested one’s National Insurance number. Maybe they still do? 

Albermarle

n15h said:

Thanks everyone for your responses.

@eskbanker - I don't know the exact figure of savings interest in 2023/24 but I do believe it is above the £1000 PSA. I'll go through my paperwork this weekend to work it out.

@Dazed_and_C0nfused - Thanks, I'll find the detailed income tax estimate page and hopefully that will help. This is the first time I have received tax code notices so they're new to me and I want to make sure I understand them correctly. Majority of my savings will be in ISAs in the new tax year (after the ISA allowances reset in April 2025 as have utilised the 2024/25 allowance), so am hopeful that for 2025/26 there will be minimal interest outside of an ISA wrapper which should be within the £1000 PSA.

@Albermarle - Thanks, I thought they are just making an assumption but your explanation helped me to understand the approach they take. There will certainly be a change of interest as my savings will be fully ISA wrapped in 2025/26.

If I don't inform HMRC that my savings are ISA-wrapped, do they revisit tax codes again in the year and adjust tax codes, or do they provide a rebate instead?

The tax code will stay the same ( so assuming you will be earning that interest) . So you will pay too much tax and will get a rebate later in 2026.
The best thing to do is to change the estimated interest in your personal tax account after April 6th . This should then mean you get a new tax code for 25/26 and pay the correct amount of tax.

Dazed_and_C0nfused

@n15h

I don't know the exact figure of savings interest in 2023/24 but I do believe it is above the £1000 PSA. I'll go through my paperwork this weekend to work it out

It is likely to be £2,161.  And HMRC use that figure when calculating your tax codes for 2024-25 and 2025-26. 

Once the actual information for 2024-25 is received from the banks HMRC will use that in any tax calculation for 2024-25 or updated tax code for 2025-26