Tax Confusion

NebulaNova

Just so I know what's going on because you lot seem way more clued up than when I called them... And by the way, I'd never recommend calling them - advisor was raising his voice at me from the start after waiting over an hour to get through and then I lost connection - was horrendous and I'll never call them again!...

2024-2025 letter came through beginning of the month stating I owed £250. I paid this off within a day.

Tax code 831L was on my payslip for this month and charged £70 more than usual, then I got a letter today saying I owed £150 and will pay this each month until April 2026 with a tax code ending X

Called them and told them my predicted interest for this tax year is a lot lower than £1000 and is actually about £75. They changed my tax code to 1200L.

Does this mean I'll get some of that £70 extra I paid this month in tax, back next month? And what does 1200L mean, that I'll pay extra tax from now on? I'm so confused.

Dazed_and_C0nfused

himonster said:

Just so I know what's going on because you lot seem way more clued up than when I called them... And by the way, I'd never recommend calling them - advisor was raising his voice at me from the start after waiting over an hour to get through and then I lost connection - was horrendous and I'll never call them again!...

2024-2025 letter came through beginning of the month stating I owed £250. I paid this off within a day.

Tax code 831L was on my payslip for this month and charged £70 more than usual, then I got a letter today saying I owed £150 and will pay this each month until April 2026 with a tax code ending X

Called them and told them my predicted interest for this tax year is a lot lower than £1000 and is actually about £75. They changed my tax code to 1200L.

Does this mean I'll get some of that £70 extra I paid this month in tax, back next month? And what does 1200L mean, that I'll pay extra tax from now on? I'm so confused.

Yes, there will likely be less tax next month.

You can use a tax calculator like listentotaxman to see what the tax will be next pay day.

But I don't think you have said what the original code, before 831L was, so it's hard to what the overall situation is.

RG2015

Shylock_249 said:

Albermarle said:

himonster said:

Albermarle said:

You can change your estimated interest in your online personal tax account. Much quicker than hanging on the phone.

Can you? How do you do that please?

Personal tax account: sign in or set up - GOV.UK

Could you please give a walk through.  I've logged on (online) and I can't see how or where it can be done.😢

HMRC are estimating my untaxed savings for FY2025/26 at £13505 based on FY 2024/5, I believe this to be correct, being the £14505 in real terms minus the 1k PSA.

I've already received all untaxed savings interest for this FY the interest figure is £12195.35 so I believe, based on the figures above that my figure should be £11195 which would take me out of the higher rate tax bracket which HMRC have placed me in for the first time this year.

If you'd be kind enough to provide a walk through on how I can change the number I'd be very grateful.

I asked about my higher rate threshold a few days ago. One of the answers said that I should include all untaxed interest even if it was taxed at 0%. This would include the £1,000 you are excluding above.

This may mean that even if HMRC use £12,195 that you would exceed the higher rate threshold.

Hopefully others will correct me here if I have got this wrong.

poblomov

RG2015 said:

I asked about my higher rate threshold a few days ago. One of the answers said that I should include all untaxed interest even if it was taxed at 0%. This would include the £1,000 you are excluding above.

This may mean that even if HMRC use £12,195 that you would exceed the higher rate threshold.

Hopefully others will correct me here if I have got this wrong.

If someone's total taxable income before any allowances is more than £50,270, they'll be a higher-rate taxpayer (assuming no gift aid donations, personal pension contributions or trading losses) and that'll affect how much of their interest income is taxable at 0%.

Same sort of thing applies regarding dividend income and the dividend allowance. See the Serenna example at

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-dividends 

surreysaver

poblomov said:

RG2015 said:

I asked about my higher rate threshold a few days ago. One of the answers said that I should include all untaxed interest even if it was taxed at 0%. This would include the £1,000 you are excluding above.

This may mean that even if HMRC use £12,195 that you would exceed the higher rate threshold.

Hopefully others will correct me here if I have got this wrong.

If someone's total taxable income before any allowances is more than £50,270, they'll be a higher-rate taxpayer (assuming no gift aid donations, personal pension contributions or trading losses) and that'll affect how much of their interest income is taxable at 0%.

Same sort of thing applies regarding dividend income and the dividend allowance. See the Serenna example at

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-dividends 

What happens if the tax code is lowered to take account of untaxed interest from previous years? Does that not affect the level at which 40% tax becomes payable?

Say, for example, my tax code is now 700, does this mean my 20% band is £7,000 to £50,270, or does the £50,270 get reduced by the same amount the £12,570 has been reduced by?

None of this is clear on HMRC's website 

eskbanker

surreysaver said:

poblomov said:

RG2015 said:

I asked about my higher rate threshold a few days ago. One of the answers said that I should include all untaxed interest even if it was taxed at 0%. This would include the £1,000 you are excluding above.

This may mean that even if HMRC use £12,195 that you would exceed the higher rate threshold.

Hopefully others will correct me here if I have got this wrong.

If someone's total taxable income before any allowances is more than £50,270, they'll be a higher-rate taxpayer (assuming no gift aid donations, personal pension contributions or trading losses) and that'll affect how much of their interest income is taxable at 0%.

Same sort of thing applies regarding dividend income and the dividend allowance. See the Serenna example at

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-dividends 

What happens if the tax code is lowered to take account of untaxed interest from previous years? Does that not affect the level at which 40% tax becomes payable?

Say, for example, my tax code is now 700, does this mean my 20% band is £7,000 to £50,270, or does the £50,270 get reduced by the same amount the £12,570 has been reduced by?

None of this is clear on HMRC's website 

Changes to tax codes don't actually change current year taxation as such, so if a code is being used to collect tax due for a different year, that doesn't affect the calculation of current year tax liabilities.

nakie999

Yes. HMRC is estimating the interest you will earn in 2025 to 2026 based on last year and collecting the expected tax through your code.

The X code means they are adjusting it during the year to recover that estimate. It is normal after you have savings interest outside an ISA.

You can stop this. Log into your Personal Tax Account and reduce the estimated savings interest to zero or to a lower figure. You can also call HMRC and ask them to remove the in year collection and settle it later.

If you do that, HMRC will issue a bill after the tax year ends and you can pay it in one lump sum instead.

surreysaver

nakie999 said:

Yes. HMRC is estimating the interest you will earn in 2025 to 2026 based on last year and collecting the expected tax through your code.

The X code means they are adjusting it during the year to recover that estimate. It is normal after you have savings interest outside an ISA.

You can stop this. Log into your Personal Tax Account and reduce the estimated savings interest to zero or to a lower figure. You can also call HMRC and ask them to remove the in year collection and settle it later.

If you do that, HMRC will issue a bill after the tax year ends and you can pay it in one lump sum instead.

Is it permissable to do this? So if I change my estimated income from interest to £0, my tax code will go up, and I can pay at a later date?

When the bill comes through, would they adjust next year's tax code to collect the unpaid tax, or would I have to pay the bill on demand?

And is this all perfectly legal to do, as technically I would be lying as I know I am earning interest!?

poblomov

surreysaver said:

Is it permissable to do this? So if I change my estimated income from interest to £0, my tax code will go up, and I can pay at a later date?

When the bill comes through, would they adjust next year's tax code to collect the unpaid tax, or would I have to pay the bill on demand?

And is this all perfectly legal to do, as technically I would be lying as I know I am earning interest!?

I can't see it being deemed illegal. As long as you pay the tax due in the end.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye13080 says, under "deductions"  if someone objects to the coding out of non-PAYE income, HMRC should remove the adjustment.

People who are in Self Assessment are given the choice whether they have an adjustment in their PAYE code to collect tax on untaxed income or whether they deal with it through their Self Assessment.

If your affairs are fairly straightforward e.g. salary/pension and bank interest, HMRC should send you a P800 or Simple Assessment after the end of the tax year using the information that has been reported to them. You'll be obliged to correct any incorrect figures.

It may be a case of HMRC putting an adjustment in your code and you getting it taken out repeatedly

poblomov

surreysaver said

What happens if the tax code is lowered to take account of untaxed interest from previous years? Does that not affect the level at which 40% tax becomes payable?

Say, for example, my tax code is now 700, does this mean my 20% band is £7,000 to £50,270, or does the £50,270 get reduced by the same amount the £12,570 has been reduced by?

None of this is clear on HMRC's website 

If your PAYE income was around the threshold between the basic-rate and higher-rate, yes an adjustment to your PAYE code to collect underpaid tax could result in tax being deducted at an effective rate of 40%, but you wouldn't be classed as a higher-rate taxpayer if your income was below £50,270.

It's just collecting the underpaid tax in addition to the tax due on your current year's PAYE income.