HMRC have told me I owe tax for 2024/2025 but they've based their calculation on the wrong allowance

disgruntled1234

Good morning all,

I'm looking for some advice on a message I've received from HMRC this morning claiming I owe £121.80 for tax year 2024/25.  Their calculation shows that I had a personal tax allowance of £12,570, but in fact my tax code for last tax year (and the tax year before) was 1317L so I argued to the lady I spoke to that surely my tax allowance would have been £13,170.

The reason why my tax code was changed to 1317L for 2023/2024 and 2024/2025 tax years was because in 2022, as a higher rate tax payer, I paid a lump sump into my pension (£2,000).  My pension provider added an additional £500.00 but the rest of the tax relied was claimed back by HMRC changing my tax code.  I didn't claim this tax relief, but I assume my pension provider notified HMRC on my behalf.

The lady I spoke to told me that the calculation for underpayment of tax last year was correct and it was correct to use a personal tax allowance amount of £12,570 because the increased tax code was to compensate for pension tax relief.

I've paid the underpayment this morning I'm, now wondering whether what I was told is correct.  Is anyone able to confirm this?  If I use a personal tax allowance of £13,170, then I calculate an underpayment of around £1.92, not £121.80!

Many thanks

Dazed_and_C0nfused

disgruntled1234 said:

Good morning all,

I'm looking for some advice on a message I've received from HMRC this morning claiming I owe £121.80 for tax year 2024/25.  Their calculation shows that I had a personal tax allowance of £12,570, but in fact my tax code for last tax year (and the tax year before) was 1317L so I argued to the lady I spoke to that surely my tax allowance would have been £13,170.

The reason why my tax code was changed to 1317L for 2023/2024 and 2024/2025 tax years was because in 2022, as a higher rate tax payer, I paid a lump sump into my pension (£2,000).  My pension provider added an additional £500.00 but the rest of the tax relied was claimed back by HMRC changing my tax code.  I didn't claim this tax relied, but I assume my pension provider notified HMRC on my behalf.

The lady I spoke to told me that the calculation for underpayment of tax last year was correct and it was correct to use a personal tax allowance amount of £12,570 because the increased tax code was to compensate for pension tax relief.

I've paid the underpayment this morning I'm, now wondering whether what I was told is correct.  Is anyone able to confirm this?  If I use a personal tax allowance of £13,170, then I calculate an underpayment of around £1.92, not £121.80!

Many thanks

You cannot have a Personal Allowance greater than £12,570.

Have you checked if the basic rate band in the calculation had been increased to account for your personal pension payments?  That is how extra tax relief for relief at source contributions really works.  You pay more tax at 20% and less at 40%.

And you get the £500 in your pension you mentioned.

molerat

Your personal allowance can never be more than £12570.  Your code, which is completely different to your allowance,  is set at an amount to attempt to collect the correct amount of tax for the year and in your case the increased code was to compensate for the higher rate tax deducted on your gross pension payments which you are no longer entitled. It all sounds correct to me. You need to keep on top of your tax affairs as at the beginning of the year HMRC will work on a lot of assumptions particularly about what occurred in the previous year.  You need to check that this year's code is correct.

disgruntled1234

This is the full calculation, minus NI number and company name

disgruntled1234

This tax year I'm back on a 1257L tax code.  I'm also taking early retirement so my last pay slip will be the end of September, so I guess I'll have to notify HMRC and claim back overpaid tax for the current tax year as I don't expect to earn any more taxable income for the rest of this tax year (other than maybe a small amount of tax on savings).

sheramber

Earnings of £41,405 are well below the higher rate band so you are not due any extra relief  for the pension payments.

The allowance given in your code was therefore   not correct and has resulted in you having the underpayment of tax.

disgruntled1234

sheramber said:

Earnings of £41,405 are well below the higher rate band so you are not due any extra relief  for the pension payments.

The allowance given in your code was therefore   not correct and has resulted in you having the underpayment of tax.

Ok. Thank you for confirming it.  I've already made the payment, but just wanted to check.  Thanks also to everyone else who responded

molerat

And even worse by being on the incorrect code resulting in a calculation and repayment has cost you £1.80 over what the PAYE system would have collected.

disgruntled1234

molerat said:

And even worse by being on the incorrect code resulting in a calculation and repayment has cost you £1.80 over what the PAYE system would have collected.

Ha ha.  I can live with that!  I should have notified HMRC when I began salary sacrificing more from my wage last August which brought be under the higher rate tax bracket. But then I didn't know whether I would need to reduce my percentage again, so left things as they were.

Albermarle

disgruntled1234 said:

This tax year I'm back on a 1257L tax code.  I'm also taking early retirement so my last pay slip will be the end of September, so I guess I'll have to notify HMRC and claim back overpaid tax for the current tax year as I don't expect to earn any more taxable income for the rest of this tax year (other than maybe a small amount of tax on savings).

Your employer will notify HMRC that you have ceased employment with them, although worth checking your personal tax account that this has actually happened.
You can then tell HMRC you will have no further income in this tax year and you would like a refund of some of the tax already paid.
If you do nothing this will happen automatically around 6 months after the end of the tax year.

disgruntled1234

Albermarle said:

disgruntled1234 said:

This tax year I'm back on a 1257L tax code.  I'm also taking early retirement so my last pay slip will be the end of September, so I guess I'll have to notify HMRC and claim back overpaid tax for the current tax year as I don't expect to earn any more taxable income for the rest of this tax year (other than maybe a small amount of tax on savings).

Your employer will notify HMRC that you have ceased employment with them, although worth checking your personal tax account that this has actually happened.
You can then tell HMRC you will have no further income in this tax year and you would like a refund of some of the tax already paid.
If you do nothing this will happen automatically around 6 months after the end of the tax year.

Thank you.  I'll keep an eye on my tax record once I've ceased employment