Wrong tax code and repayment options

sedor5

Hello, I'm looking for a recommendation on a change of tax code.

I am a full-time employee and all my payslips and taxes are though PAYE.

In March 2024 I paid 3.5k£ into a SIPP (and the correct grossed up top-up of £875 was then added by HMRC the following months). Probably as a consequence of this (since nothing else changed) my tax code was changed from 1275L to 1475L in my payslips from January 2025 up until now and, shamefully, I admit I did not pay too much attention to it.

I completed my self-assessment for the financial year 2024-25 last month, and I had to pay about 2100£ in missed taxes. I think what happened is that my tax code was changed because HMRC assumed my SIPP transfer in early 2024 was going to repeat in 2025, but I actually intended it as a one-off!

Now to the solutions. I paid the outstanding taxes for 24-25. I want to avoid another surprise of 2+k£ next year. But also, I would like postponing paying another large amount of money at least until end of March 2026, when I should receive a bonus which will allow me to absorb a surprise outgoing, but will also put me above the 100k threshold.

Ideally, if I have to pay some money, I'd rather put them in my SIPP rather than giving them to HMRC. So, should I:

1) contact HMRC to reinstate the 1257L tax code as soon as possible (Feb 2026)? Will I then have to pay back HMRC for year 25-26 soon after, or will I be required to pay back at the next self-assessment?

2) wait until the nex tax year (April) to have my tax code changed? Will I then have to pay back HMRC for year 25-26 soon after, or will I be required to pay back at the next self-assessment?

3) first, move some of the bonus I will receive in March to the SIPP, so hopefully this will result in balancing the owed taxes and minimise the surprise tax in the next self-assessment (hopefully to just hundreds and not thousands of £). After that, have my tax code changed in April.

Or do you have other better suggestions?Thanks in advance for your help.

Regards

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6653192/wrong-tax-code-and-repayment-options

1. I cannot imagine HMRC will be willing to issue the emergency code (1257L) in this situation. This late in the year normally means HMRC would issue any new tax code on a non cumulative basis and you pay a bit extra of what is owed (for 2025/26) in February (depending on your pay day) and March. The rest is included in your 2026/27 tax code. Or resolved via your 2025/26 Self Assessment return if you need to file one.
2. That is an option. With the benefit of you paying it back in your 2027/28 tax code or direct to HMRC by 31 January 2027 if part of a Self Assessment that isn't collected via your tax code.
3. Will a SIPP contribution in this tax year result in a personal tax saving? If so then that seems a financially sensible choice.

DRS1

If you are doing a self assessment there is abox in the pension contributions section (1.1) which you can fill in to say this much was a one off contribution. That may help avoid the tax code issue in future.

If you are going to go over the £100k level then it would make sense to contribute enough to the SIPP (or another pension) to get yourself under that level.

Albermarle

In March 2024 I paid 3.5k£ into a SIPP (and the correct grossed up top-up of £875 was then added by HMRC the following months). Probably as a consequence of this (since nothing else changed) my tax code was changed from 1275L to 1475L in my payslips from January 2025 up until now and, shamefully, I admit I did not pay too much attention to it

Did you do a self assessment for 23/24 and include this gross SIPP payment. Maybe this is what triggered a new tax code in January 2025. ?

 I think what happened is that my tax code was changed because HMRC assumed my SIPP transfer in early 2024 was going to repeat in 2025, but I actually intended it as a one-off!

For many things, HMRC have to assume that nothing will change from one tax year to the next, if they are not informed otherwise.

It seems strange that a change in tax code of that size, assuming it does relate to a pension contribution of £4,375, meant that you had underpaid taxes by over £2,000. What is your actual salary level, including bonuses?

sedor5

Thanks to everyone who replied to my post, very appreciated! Here are my replies:

https://forums.moneysavingexpert.com/discussion/comment/81864875#Comment_81864875

• I will need to fill in another self assessment next year for sure
• About point #3, since currently being in the 60% tax trap, the transfer to a SIPP does help anyway

https://forums.moneysavingexpert.com/discussion/comment/81865111#Comment_81865111

• Thanks for the heads up about the box, I'll have a look next time
• Agreed about the SIPP. The question is: how do I quantify how much I need to put into it (and minimizing it): should it be similar to what I put last time (3.5k£ not grossed up) or a quantity that would result in the grossed up part (which is 25% of my transfer) being roughly the level of surprise taxation I'd expect (about 2k£)?

https://forums.moneysavingexpert.com/discussion/comment/81865158#Comment_81865158

• In March 24 I moved this money into the SIPP to get below the 100k mark. I sent a letter received by HMRC before the end of that financial year and the grossed up amount soon followed, but no change of tax code happened. In Dec 2024 I filed the self assessment for the 23/24 year and declared the amount I moved into the SIPP. The change of tax code happened just after, in Jan 25. I'm pretty sure nothing else changed in my position to justify the change in tax code or the surprise taxation.
• Total salary is just below 100k, but often goes above with a bonus (it was the case in all these last years I discussed about). Not sure why you are stating the 2k surprise bonus sound weird: going from a 1275L to a 1475L meant basically paying 2000£ less tax in a year by definition (at least approximately, since the personal allowance is bumped up by +2k), so it sort of made sense in my mind?

Anyway, if I understood correctly your comments, the best way forward would be, in summary:

• Ideally, by March transfer into the SIPP a similar (or greater) amount as what I transferred back in 2024.
• Contact HMRC ideally in the new financial year to confirm the reason behind the surprise tax was the ONLY the change in tax code due to the expected but not delivered SIPP contribution. Postponing the tax code correction to the new financial year may give the advantage of not having to pay another large surprise tax too soon (I've got other expenses planned in the coming months), so I can pay the tax when I will file the next self assessment.
• The only risk would be transferring money into the SIPP before knowing for sure I won't have to pay another large bill too soon. This makes me wonder if I should contact HMRC actually ASAP!

Thanks again, looking forward to your further comments.

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/81865820#Comment_81865820

The change from 1275L to 1475L means you got an extra £2k personal allowance, so you didn't pay 20% tax on that £2k, so you would have owed 20% of £2k (£400), not £2,000.

sedor5

https://forums.moneysavingexpert.com/discussion/comment/81865895#Comment_81865895

Thanks for your explanation. I guess a call to HMRC before I do anything else would be useful to get a proper explanation, then.

I rechecked the two last self assessment calculation. These are the main differences:

• Where the 23/24 summary reads "minus Personal Allowance: £12570", the 24/25 summary reads "minus Reduced Personal Allowance: £9350", and the difference between these numbers is £3220. This is what I supposed is linked solely to the change of tax code.
• All the other numbers are as expected. The difference between the "Income Tax Due" and "Income tax deducted" was just a small amount in the 23/24 self assessment, and 2k+ £ in the 24/25 self assessment (the topic of this post).

Does this help to clarify or do you think something else may be going on?

Thanks again

DRS1

I am no good with tax codes but I think they sometimes have adjustments with are designed to capture an amount of tax and so a simple sum like add 2k to the personal allowance isn't how they would give you an extra tax relief for a 2k contribution. For a 2k contribution to a relief at source pension the 2k gets added to your higher rate band threshold not the personal allowance. How that gets done for a tax code is not something I know.

Where you had a reduced personal allowance for 24/5 there should be a note explaining it. I imagine it is because you went over the £100k level and did not have a SIPP contribution to help you out. But if the reduction is £3220 doesn't that mean you were over by £6440?

sedor5

https://forums.moneysavingexpert.com/discussion/comment/81866644#Comment_81866644

Well...I'm no good at taxes either! And you're probably better than you think, considering you almost perfectly guessed I was £6441 over!! :-) I still don't understand how you calculated this!

I am even more confused now: was my surprise taxation likely a combination of being over 100k, having a wrong tax code (due to the past SIPP transfer) and not having transferred again to the SIPP last year?

DRS1

It is simpler than you think. The problem with being over the £100k level is that you lose part of your personal allowance. For every £2 you are over you lose £1 of allowance. That is why the "60% band" runs out at about £125k because by the time you reach that figure all £12570 of allowance has gone.

Missing out on the SIPP contribution in 24/5 would be a large part of the extra tax you paid. Crudely 6441 x 60% is £3864.60. If you paid more than that in extra tax then that would be attributable to the tax code.

You asked earlier how to work out what to contribute to your SIPP to get you below the £100k level (Someone will be along to tell me I am using the wrong terminology there because the contribution does not reduce your income it simply increases the higher rate threshold)

So here is a stab. The problem is you need to know the level of your bonus and if it is paid late in the tax year you may be stuck trying to get the contribution in to the SIPP in time.

But crudely lets say your taxable income is £110k (that is all your taxable income including savings interest from non ISAs or dividends from shares held outside an ISA or rent or whatever else you put in your tax return as taxable income). You want to get down to £100k so you need to contribute £10k to the SIPP. But that is £10k gross (ie including the tax relief claimed back by the SIPP) so you only pay a net contribution of £8k and the SIPP reclaims the other £2k from HMRC to give you the gross contribution of £10k.

Some employers allow you to salary sacrifice pension contributions (good because you and they save some NICs as well as tax) and some of those allow you to sacrifice some or all of your bonus. That would be into a workplace scheme rather than a SIPP (I guess). It can also help with the timing issue I mentioned earlier. If you do contribute via a sacrifice arrangement then you would sacrifice the full £10k because the pension scheme doesn't reclaim anything for that sort of contribution (it is an employer not an employee contribution).

I know you want to contribute the bare bones to get below £100k but if you don't know the level of the bonus that will be tricky especially if you can only make the payment once you have received the bonus. To make affording the contribution easier and spread it out some people will have a guess at the level of bonus and work out how much extra to contribute spread over the whole tax year.

sedor5

https://forums.moneysavingexpert.com/discussion/comment/81866928#Comment_81866928

Amazing answer, thank you. Ok I think I will then make a guess on how much to transfer to the SIPP or salary sacrifice.

But should I then contact HMRC (by letter, by phone, or...?) right now or after April, to also request a change of the tax code back to 1275L, or is it now superfluous? I just want to achieve two things: no more taxes to pay in these months before the next self-assessment, and ideally, all taxes going out via PAYE automatically.