Confused about my new tax code

borderline

Please can someone tell me if HMRC is correct saying I own them money and why my tax code is so low?

I called them today and they said it was correct but I still don't see it clear.

It's related to medical insurance at work. I'm a normal tax payer . I joined the medical insurance in January 2024. Up until March 2025 my tax code was 1257L. In January they emailed me saying I owed them £175 because of the medical insurance tax year 24-25. My tax code this April was changed to 1169L. Now I had another email from them saying I owe them £84 (because they just received the info from my employer about medical insurance for this tax year and these £84 are from April until July) and my tax code will be 981L from now on. And that I will get about £30 less a month in pay.

doesn't look like I'm being taxed too much? if I owe them £80 , how come I'm gonna be short £30 every month until the new tax year? . that's £240 short and not £84, plus it seems I still carry on the £175 they say I own from tax year 24-25. 😫

DRS1

When they change your tax code there are usually some notes explaining how the new one is worked out - if you didn't get a letter with the new code then it may be in your personal tax account online.

You don't mention the medical insurance for 25-26. Are they taxing you on that yet or is that being saved up for next year?

borderline

https://forums.moneysavingexpert.com/discussion/comment/82083054#Comment_82083054

it says:

Why it changed

You need to pay tax on the medical insurance your employer provides you.

We've adjusted your tax, because we estimated you'll owe HMRC£84.60 this tax year.

To make sure you pay this by 5 April 2027, we'll increase the amount of tax deducted from your wage, salary or pension.

(the medical insurance was added in July to HMRC, although my insurance starts in January )

I think if HMRC was informed in January about the insurance and not now in July it wouldn't be so confusing .\But I still think my tax code is too low

it says new tax code 981L Week1/Month1

Medical Insurance£1,271

Underpayment of £175.40 from previous year

£877

Adjustment for estimated tax of £84.60 you owe for this year

£605

subjecttocontract

Someone better qualified will probably be along shortly. In the meantime my take is this. You owe the taxman £260 (£175.40 last tax year + £84.60 this tax year) so if you are gonna be £30 worse off every month until the end of the tax year that will approx' clear the amount you owe. A new tax code of 981L means you will pay an extra £30 a month in tax.....exactly what HMRC have said. So the numbers look good.

borderline

https://forums.moneysavingexpert.com/discussion/comment/82083117#Comment_82083117

but I'm already paying for those £175, hence my 1169L tax code .

shouldnt' be tax code 1169-£84 = 1085 tax code and not 981 tax code…

gosh this is so confusing .\Funny thing is, I asked a colleague of mine about his tax code and he said still is 1257L even though we have the same medical insurance , he should get a letter from HMRC too , can't be only me being chased

DRS1

shouldnt' be tax code 1169-£84 = 1085 tax code and not 981 tax code…

No because they are trying to get £84 of tax and if that is say 20% tax then you need to multiply by 5 to get the right deduction from your allowance. But that gets me to 420 not 605 so maybe the tax rate is not 20%.

ETA it is odd because the £175.40 adjustment is using a tax rate of 20% (877 x 20% = 175.40).

Vitor

The code looks right. The £84.60 is only the tax missed from April to July, not the full-year cost of the medical insurance.

Your £1,271 medical benefit costs about £254 a year in tax at 20%, and HMRC is also collecting the earlier £175.40 underpayment. That is why the code has fallen from 1169L to 981L and your monthly tax rises by about £30.

The Month 1 basis just means payroll applies the new code from now rather than recalculating the whole year.

borderline

https://forums.moneysavingexpert.com/discussion/comment/82083151#Comment_82083151

Thank you.

my colleagues still have the 1257L tax code but they have another a BIKPH code on their payslip that I never had. I told payroll and they said they will add it from now on.. but I questioned them if I am gonna be taxed twice by adding this code since I'm already on a much lower tax code. They said yes, I'll be taxed twice.. but how does this make sense ? Taxed double for the same thing?

molerat

They could be paying it through payroll - the value of the BIK is added to their pay and tax deducted accordingly, yours is already being reported to HMRC. This is something that is being phased in for everyone and will be compulsory for most benefits from next April.

borderline

https://forums.moneysavingexpert.com/discussion/comment/82084060#Comment_82084060

my colleagues yes . But in my case, if payroll adds it to my payslip from now on with that BIK code and on top of that HMRC is taxing me on it, it means I'm paying twice for this medical insurance . This is how I see it

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82084394#Comment_82084394

Yes, but at some point you will get back any tax overpaid. I would wait until the BIK new system has actually applied to your salary one month, and then phone HMRC to tell them that you are now paying tax directly on the benefit, and so your tax code should be changed/increased. It might even happen automatically if your payroll communicated the change to HMRC.