Do HMRC see alternative income "live" now?

AP3

HMRC have recently changed my tax code to a K code to collect extra tax. The thing is, last year I didn't owe any tax at all, as I was bringing in less than £12570.

This year I started to receive a pension of ~£22k pa, and I also earn a substantial sum in income from bonds, so I know I will be owing them tax, but assumed based on prior knowledge that tax owed for this year (25/26) would be added to my tax code for next year (26/27).

Has something changed that I'm not aware of to allow HMRC to view and collect tax for extra income in the existing tax year?

I've done the maths, and they've hit the interest owed figure bang on the nose, and the year isn't even finished yet! I thought the banks only reported interest once per year?

sheramber

Did you receive any interest last year?

AP3

sheramber Yes I did, but below £12570. This year it will be quite a bit more than that. Last year I wasn't employed and didn't have the pension, so that was all that came in.

Isthisforreal99

AP3 said:

sheramber Yes I did, but below £12570. This year it will be quite a bit more than that. Last year I wasn't employed and didn't have the pension, so that was all that came in.

Have they used last years interest figure in the tax code?

Yes, HMRC will collect a calculated undepayment as a result of a coding adjustment in year, and has been the case since 2017.

Dazed_and_C0nfused

AP3 said:

HMRC have recently changed my tax code to a K code to collect extra tax. The thing is, last year I didn't owe any tax at all, as I was bringing in less than £12570.

This year I started to receive a pension of ~£22k pa, and I also earn a substantial sum in income from bonds, so I know I will be owing them tax, but assumed based on prior knowledge that tax owed for this year (25/26) would be added to my tax code for next year (26/27).

Has something changed that I'm not aware of to allow HMRC to view and collect tax for extra income in the existing tax year?

I've done the maths, and they've hit the interest owed figure bang on the nose, and the year isn't even finished yet! I thought the banks only reported interest once per year?

Times have moved on and where they can (and subject to a maximum deduction of 50% each pay/pension payment) they will try and collect tax you owe for the current tax year during the year rather than moving it to the next year, or even the one after that.

But it's only ever an estimate and the final position, including getting credit for the extra tax deductions you will see on your P60, will be established next summer/autumn when HMRC review the year to 5 April 2026.

The interest figure they will be using is based on what you received in 2024/25, this is the estimate for 2025/26 (and 2026/27) until the actual figures for 2025/26 are reported by the banks.

AP3

Dazed_and_C0nfused If they used the interest figure for last year, I'd just be on a reduced L code.

They seem to have accurately predicted exactly how much tax I'll owe this year, which is impressive, considering income has varied quite a lot month-to-month, but should be settled for a while now. (moving money to better paying accounts etc.)

I'm just really curious to understand how they're getting this apparent "live" data, without the banks reporting on a monthly basis.

DRS1

By this time of year HMRC will know your interest figures for 24/5 but they won't know the figures for 25/6.  So if they have hit the right figure for 25/6 that must be a coincidence.  If your interest for 25/6 is a lot higher than 24/5 then that suggests they may have carried over figures for 23/4 into their 24/5 figures (eg where you closed some accounts and opened new ones)

Dazed_and_C0nfused

AP3 said:

Dazed_and_C0nfused If they used the interest figure for last year, I'd just be on a reduced L code.

They seem to have accurately predicted exactly how much tax I'll owe this year, which is impressive, considering income has varied quite a lot month-to-month, but should be settled for a while now. (moving money to better paying accounts etc.)

I'm just really curious to understand how they're getting this apparent "live" data, without the banks reporting on a monthly basis.

They aren't getting any live data as banks don't report interest in real time.

They will be using last year's interest as the basis for this year's interest amount.

And separately to that the tax code can include an adjustment to collect any (estimated) unpaid tax for the current tax year.

Although there is a connection between the two, i.e. the interest might be the cause of the tax owed, these are separate entries in your tax code.

AP3

If I take 20% of the annual pension and 20% of what I should have made in interest for the whole 25/26 tax year, they have it correctly estimated down to the last pound. That surely can't be a coincidence!

I suppose I shouldn't grumble. Rather they take it through PAYE than having to pay a lump sum and potentially payments on account.

Dazed_and_C0nfused

AP3 said:

If I take 20% of the annual pension and 20% of what I should have made in interest for the whole 25/26 tax year, they have it correctly estimated down to the last pound. That surely can't be a coincidence!

I suppose I shouldn't grumble. Rather they take it through PAYE than having to pay a lump sum and potentially payments on account.

Why do you need to file a Self Assessment return?

AP3

Dazed_and_C0nfused

Non-PAYE income over £10k.