ALLOCATING TAX CODE

Jellied_eels2

I'm currently employed in the 40% tax bracket, and also have a military pension of £26000.  My employment has a tax code of BR against it and my pension has a code of K1470 M1.  is this the best use of my tax allowance or do I need to seek advice.  

Isthisforreal99

How is your K code made up?

I suspect that although your overall income may make you a 40% taxpayer that no individual source makes you higher rate? In such cases code BR is applied to the pension with an adjustment made to the main source to try and collect any higher rate tax due.

Without figures we are just guessing.

DavidT67

How tax codes are allocated to income streams doesn't change your personal allowance.  

Whether it's BR and K or some other split shouldn't change the amount of tax paid in aggregate.

The implication is that HMRC view your pension as your primary income and they will look to deduct up to 50% of that income to cover taxes due from other sources such as state pension, savings interest, etc.

Jellied_eels2

Thanks, main income is £63,000 tax code BR.

pension is £26,000 tax code K1470 M1

Dazed_and_C0nfused

Jellied_eels2 said:

Thanks, main income is £63,000 tax code BR.

pension is £26,000 tax code K1470 M1

You will likely have something called an adjustment to rate band deduction in your tax code.

This is needed because you are a higher rate payer overall but not at your main source.

It's good to keep your estimated income up to date on your Personal Tax Account as this impacts your tax code calculation and no one knows how much you will earn/get from your pension as accurately as you do!

Cobbler_tone

I like the mantra ‘every day’s a school day’. 

I learned today that not everyone has a tax code. 

DRS1

Cobbler_tone said:

I like the mantra ‘every day’s a school day’. 

I learned today that not everyone has a tax code. 

I happily survived without one for 40 years.

Now like the OP I have two.

OP I suspect your tax codes may be set up this way because your pension income started before the employment income.  I think only the second source gets a BR code.

Is the right amount of tax getting deducted?  If you want to you may be able to get HMRC to swap the codes around.  The actual codes may change as a result.  Someone like @Dazed_and_C0nfused will know if that is a good idea.  It seems odd to me to have BR applied to an income which on its own gets you into higher rate tax.  But if they are deducting 20% on the whole lot maybe that deducts more than a normal code would.

molerat

Have the employment / pension / codes all been in place from the start of the tax year ?  Does your on line tax account show the correct estimated income for all sources ?

Jellied_eels2

Thanks everyone, BR Tax code has been in place for a couple of years and my online tax account reflects the right amount for both incomes.  I'm just not 100% certain that the code allocations have been appropriately allocated and as a result I'm overpaying.  Was thinking of paying for someone to have a proper look   

molerat

You most certainly don't need to pay anyone as it is pretty straightforward to work it out with all the details.  On the face of it you are underpaying, an income of £89K is due tax of £23028, you are paying £8741 on the pension (£728pm - will be shown on your bank statement PGO TAX 0000xxx.xx) and £12600 on the job so £21341.  But ..... is that all the information, what about pension contributions ?  How do you pay into your employment pension - salary sacrifice (where your salary is reduced), relief at source (where the provider adds 25%) or net pay (where the contribution is taken before tax) ?

I would have expected your full coded allowance to be allocated to the job and D0 to the pension which would make matters much more straightforward.