Big change in tax code

VXman

My wife has just had a tax code change notification. It has gone from 1132 to 682. 

The reason is  "Adjustment to rate band 4128"

Now, I am assuming this is to do with going into the 40% tax rate. She unfortunately crept into this accidentally when she earned more interest on savings than expected and took out a little to much from her pension drawdown.

However, I reckon this is going to cost her around £100 a month in additional tax. That can't be right? 

Is this how they deal with 40% tax payers - by adjusting the code? How does that work? 

We have notified HMRC about changes to income in the coming tax year so hopefully it should be adjusted back but I'm just interested in how this all works .

molerat

Band adjustments happen when you are a higher rate payer with not enough income from any one source to deduct that rate through normal coding.  if any of the sources - including interest - in the on line tax account showed too high an income against your actual estimated then correcting that should bring a change in code.

DE_612183

I think you can offer to pay the tax as a lump sum and they will then adjust the rate back down.

VXman

DE_612183 said:

I think you can offer to pay the tax as a lump sum and they will then adjust the rate back down.

She doesn't actually owe anything (well, a little - that is represented in the original 1132 tax code) They have just calculated the new code on what they THINK she will earn.

DE_612183

she should be able to go into the personal tax page on HMRC and adjust the estimated income for 25/26

sheramber

VXman said:

DE_612183 said:

I think you can offer to pay the tax as a lump sum and they will then adjust the rate back down.

She doesn't actually owe anything (well, a little - that is represented in the original 1132 tax code) They have just calculated the new code on what they THINK she will earn.

That is what happens unless you advise them of  a different estimate.

Normally they base it on the information for the previous year until advised otherwise. 

Albermarle

VXman said:

DE_612183 said:

I think you can offer to pay the tax as a lump sum and they will then adjust the rate back down.

She doesn't actually owe anything (well, a little - that is represented in the original 1132 tax code) They have just calculated the new code on what they THINK she will earn.

If you think about it, what else can they do but base an earnings estimate on the previous year, unless informed otherwise.
A tax code is just an attempt to try and take the right amount of tax.

VXman

Albermarle said:

VXman said:

DE_612183 said:

I think you can offer to pay the tax as a lump sum and they will then adjust the rate back down.

She doesn't actually owe anything (well, a little - that is represented in the original 1132 tax code) They have just calculated the new code on what they THINK she will earn.

If you think about it, what else can they do but base an earnings estimate on the previous year, unless informed otherwise.
A tax code is just an attempt to try and take the right amount of tax.

Yep - the problem is for people like me and my wife who do bits of uncontracted, illregular work. She earned £500 on 31st April for work done in early march. They have assumed this is going to be 500 per month for a year and decided that's another £6000 of income. 

Anyway, sorted now. I updated the earnings online and HMRC outdid themselves and changed her code back in 1 day!!!