Higher tax rate

martinnoddy

In June 2025 I ended my civil service career on medical inefficiency grounds for which I received a compensation payment.  With unused holiday, payment lieu of notice and the actual compensation my final payment was approximately £120k.  I paid £47k in tax on this payment which I believe was excessive.  I have now started a minimum wage role and also draw a Mineworkers pension both of which are being taxed at the higher rate of 45%.  I keep getting told by the inland revenue that I must wait till April 2026 for any adjustment or review to take place.  Will I receive any refund or will my 2026 tax liability continue at the higher rate based on my 2025 income.

kimwp

martinnoddy said:

In June 2025 I ended my civil service career on medical inefficiency grounds for which I received a compensation payment.  With unused holiday, payment lieu of notice and the actual compensation my final payment was approximately £120k.  I paid £47k in tax on this payment which I believe was excessive.  I have now started a minimum wage role and also draw a Mineworkers pension both of which are being taxed at the higher rate of 45%.  I keep getting told by the inland revenue that I must wait till April 2026 for any adjustment or review to take place.  Will I receive any refund or will my 2026 tax liability continue at the higher rate based on my 2025 income.

The tax year runs from April to April.

So if your taxable income within that year so far takes you into the 45% tax band, then any further income within that year will be taxed at 45%.

sheramber

Your income for the year 25/26 is what you receive from 6 April 25 to 5 April 26.
 

From 6 April 26 you will have a new code number for the new tax year. 

SiliconChip

If you don't already have a Personal tax account I suggest that you set one up, that will allow you to see the basis for your current tax code and once we're in the new tax year offer you the opportunity to correct any assumptions that HMRC make about your future income.

https://www.gov.uk/personal-tax-account

Woodstok2000

Is the full compensation payment taxable? That may reduce your liability a bit, but £47k tax on £120k earnings sounds about right. Once you're over £100k for the year you start losing your personal allowance and so your marginal tax rate shoots up. My overall tax rate (including NI) would be just over 40% if I didn't salary sacrifice.

DRS1

Is there scope for making any pension contributions this tax year?  That may save a bit of tax and maybe restore your personal allowance if you can get below £100k.  But if you were in the CSP then you may need some specialist advice on that.

molerat

Did you not give the P45 from the ended employment to the new employer ?

eskbanker

martinnoddy said:

Will I receive any refund or will my 2026 tax liability continue at the higher rate based on my 2025 income.

As above, it seems unlikely that you'll receive any refund for 2025/26 if your taxable earnings in that year took you into the 45% band, but this has no effect on your 2026/27 tax liability, so that should return to more manageable levels.  HMRC will allocate your £12,570 personal tax allowance to either or both (split) of your PAYE sources, i.e. the pension and the job, and anything in excess of that amount (and below £50,270, in aggregate) will be taxed at 20%, or slight variations of those figures if you're in Scotland.

monkey-fingers

DRS1 said:

Is there scope for making any pension contributions this tax year?  That may save a bit of tax and maybe restore your personal allowance if you can get below £100k.  But if you were in the CSP then you may need some specialist advice on that.

I think there almost certainly will be!
There's no chance that they've paid £60k into their pension for the last 3 years.

I mean, theoretically, they could probably squeeze in the full £120k into a SIPP and claim the tax back.

martinnoddy

molerat said:

Did you not give the P45 from the ended employment to the new employer ?

I did yes, but just get told I have to wait till April 2026🤷🏻

Dazed_and_C0nfused

martinnoddy said:

molerat said:

Did you not give the P45 from the ended employment to the new employer ?

I did yes, but just get told I have to wait till April 2026🤷🏻

What was the tax code and basis of operation (cumulative or non-cumulative) on the P45?

Are you going to be making any significant pension contributions to reduce your adjusted net income?