Tax code help.....
Tax code help.....
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Discussion

TVR1

Original Poster:

5,478 posts

255 months

Thursday 2nd August 2012
quotequote all
Not a problem as such but for various reasons to do with not working for a large part of the last financial year and declaring income from multiple sources (employed and self employed) I have been put on a BR coding by HMRC. As I understand it, for this financial year, I am being taxed at a flat 20% on all income. Sounds good, non? The downside is that I have no tax free allowance. Here's the problem; so that I am no worse off my gross income can't fall below approx £4k p/month. The thing is, my gross income for the last two months has far exceeded that figure and looks to continue that way. So whilst it's nice to be taxed at a flat 20% I know that if this continues, next year I'm looking at a monster K coding. At what point can I ask HMRC to review my code? It is totally inappropriate for my current situation and I don't want to be hit with a huge tax bill.

davepoth

29,395 posts

229 months

Friday 3rd August 2012
quotequote all
TVR1 said:
Not a problem as such but for various reasons to do with not working for a large part of the last financial year and declaring income from multiple sources (employed and self employed) I have been put on a BR coding by HMRC. As I understand it, for this financial year, I am being taxed at a flat 20% on all income. Sounds good, non? The downside is that I have no tax free allowance. Here's the problem; so that I am no worse off my gross income can't fall below approx £4k p/month. The thing is, my gross income for the last two months has far exceeded that figure and looks to continue that way. So whilst it's nice to be taxed at a flat 20% I know that if this continues, next year I'm looking at a monster K coding. At what point can I ask HMRC to review my code? It is totally inappropriate for my current situation and I don't want to be hit with a huge tax bill.
If your income is variable by that extent they'll probably not look at it until you file a return.

On the basis that it's going to be around 40% of all of your earnings over £37,000, and an extra 20% on top of what you're currently paying, and assuming £4k a month, I make that somewhere around £2,200 that HMRC will ask for. Open a savings account, bung £250-300 a month into it by standing order, and if the tax bill comes to less than you've saved, buy some coke and hookers. Job jobbed.

-edit-

To finesse it a bit more you can always use an online tax calculator to get a better idea of what the tax bill would be if you were coded properly, and then save the difference.

http://listentotaxman.com/index.php

Edited by davepoth on Friday 3rd August 00:14

TVR1

Original Poster:

5,478 posts

255 months

Friday 3rd August 2012
quotequote all
davepoth said:
If your income is variable by that extent they'll probably not look at it until you file a return.

On the basis that it's going to be around 40% of all of your earnings over £37,000, and an extra 20% on top of what you're currently paying, and assuming £4k a month, I make that somewhere around £2,200 that HMRC will ask for. Open a savings account, bung £250-300 a month into it by standing order, and if the tax bill comes to less than you've saved, buy some coke and hookers. Job jobbed.

-edit-

To finesse it a bit more you can always use an online tax calculator to get a better idea of what the tax bill would be if you were coded properly, and then save the difference.

http://listentotaxman.com/index.php

Edited by davepoth on Friday 3rd August 00:14
Cheers! Listentotaxman was how I worked it out. A great site. My income was variable last year only, hence the situation. Now that I'm back in full time employment, I don't want to be screwed next year. I figured putting aside a few £100 would be the last resort but is it possible to have HMRC adjust my tax code now, rather wait?









ETA. No need for C&H anymore smile

davepoth

29,395 posts

229 months

Friday 3rd August 2012
quotequote all
You can always ask them I suppose. I'm surprised they haven't worked it out from your PAYE. If it's a big company you're working for it might be worth getting HR/payroll to do the legwork, they have to be there for something...

NiceCupOfTea

25,595 posts

281 months

Friday 3rd August 2012
quotequote all
I had a similar situation recently where one of my employments overpaid me for a while so the taxman put me on a tax code rather than the basic rate I was on previously. I preferred being on BR as effectively I overpaid at source so was already paying a fair chunk of the tax I would be asked for on my self employed earnings at the end of the tax year.

I rang the inland revenue but the woman I spoke to was incredibly unhelpful and accused me of lying to them and telling the wrong figures (in reality, I tell the office I work for the hours & miles I do, they pass this on to the council payroll dept who deal, and somewhere down the line it turns into an average monthly salary with averaged out expenses, so I had no way of confirming the figures she was bouncing off me!

Anyway, I have ignored it and have been putting a bit aside to allow for any unpleasantness come January...

Is it possible to ring the tax office and request to go back onto basic rate?

Eric Mc

125,758 posts

295 months

Friday 3rd August 2012
quotequote all
If by "last year" you mean 2011/12, I would ask HMRC to complete a self assessment tax return for 2011/12 as soon as possible so that your correct 2011/12 tax liability can be calculated. If you have underpaid tax for 2011/12, the tax will be payable in full by 31 January 2013.

If you are completely on PAYE for tax year 2012/13 AND your 2012/13 tax code is correct AND you have no other sources of income outside of your PAYE earmings, then you may not need to complete a 2012/13 self assessment tax return.
However, in my opinion, anyone who is paying tax at 40% or 50% should really complete a self assessment tax return as a matter of course because it allows the taxpayer to review their tax position every year and, essentially, tell HMRC what the true situation is - rather than hoping that they or your employer are getting it right.

By doing self assessment tax returns, you put yourself in control of your own tax situation.

KingOfSnake

5 posts

173 months

Wednesday 8th August 2012
quotequote all
Agree with Eric.

Get yourself set-up on self-assessment and file tax returns. Can be done on-line via HMRC website (just takes a little while to get all the passwords through) but then you are clean every year. It looks complicated but is seriously straight forward.

As for the tax code, it may change in due course when they process the on-line P46 submitted. It will probably be a non cumulative code - you can try phoning HMRC (try really early in the morning or Saturdays) and explain - but even this is not guaranteed to work (I phones to change my code and told her I had to go onto W1/M1 non-cululative and the wrong code came through again).

BR is OK for cash flow advantages, but it will catch up in the end and be a pain in the arse to sort out.

NiceCupOfTea

25,595 posts

281 months

Wednesday 8th August 2012
quotequote all
KingOfSnake said:
BR is OK for cash flow advantages, but it will catch up in the end and be a pain in the arse to sort out.
How so? It all comes out in the wash at the end of the year, doesn't it?

Eric Mc

125,758 posts

295 months

Wednesday 8th August 2012
quotequote all
NiceCupOfTea said:
KingOfSnake said:
BR is OK for cash flow advantages, but it will catch up in the end and be a pain in the arse to sort out.
How so? It all comes out in the wash at the end of the year, doesn't it?
Not at all - especially if the taxpayer is not completing Self Assessment returns.

A taxpayer on a salary of £100,000 would seriously underpay PAYE if they were on a BR code. And it can take HMRC up to three years to find out that there is a problem. That would really hurt if you had to pay theree years of tax underpayments all in one go.

NiceCupOfTea

25,595 posts

281 months

Wednesday 8th August 2012
quotequote all
Eric Mc said:
Not at all - especially if the taxpayer is not completing Self Assessment returns.

A taxpayer on a salary of £100,000 would seriously underpay PAYE if they were on a BR code. And it can take HMRC up to three years to find out that there is a problem. That would really hurt if you had to pay theree years of tax underpayments all in one go.
For higher rate taxpayers that makes sense - as I understand it, somebody like me who earns much less through several "employments" ends up paying the BR tax on all the money he earns (ie, no personal allowance), so when it comes to their tax return, a lot of the tax due on any other self employed work has already been paid.

Eric Mc

125,758 posts

295 months

Wednesday 8th August 2012
quotequote all
NiceCupOfTea said:
Eric Mc said:
Not at all - especially if the taxpayer is not completing Self Assessment returns.

A taxpayer on a salary of £100,000 would seriously underpay PAYE if they were on a BR code. And it can take HMRC up to three years to find out that there is a problem. That would really hurt if you had to pay theree years of tax underpayments all in one go.
For higher rate taxpayers that makes sense - as I understand it, somebody like me who earns much less through several "employments" ends up paying the BR tax on all the money he earns (ie, no personal allowance), so when it comes to their tax return, a lot of the tax due on any other self employed work has already been paid.
No - how can HMRC tax a person on self employed income BEFORE they are told how much that income actually is. The only mechanism for reporting self employed/trading profits to HMRC is through the Self Assessment system.

If a person is an employee or a director, in THEORY the PAYE system should deduct the correct tax fron the salary paid. However, when an individual has multiple sources of PAYE taxed income (more than one job, a job and some pension income etc) it is VERY hard for HMRC to be able to split and allocate tax codes correctly between the various PAYE earnings. 90% of the time they get it wrong and it is causing massive problems at the moment for those who atre in this situation.

NiceCupOfTea

25,595 posts

281 months

Wednesday 8th August 2012
quotequote all
I'm confused.

If I earn 25% of my income from 1 employment, 25% from another employment (both of which I PAYE) and 50% from self-employment, being on BR for both employments means that I get taxed on the full earnings from each employment (and so effectively overpaying as my personal allowance is not taken into account). Then, when I fill in my tax return with my self employed earnings/allowable expenses, they know what my total taxable income is and what I have paid in tax already (both PAYE and payments on account) so can calculate the remaining tax to be paid. The following year's payments on account are based on the previous year's.

That's how I understood it worked anyway!

Is this not the case?

Should I have tax codes for both the employments? What's the benefit of this to me? It seems the only difference will be paying less at source and more in individual payments twice a year, which is what I don't want!

sumo69

2,164 posts

250 months

Wednesday 8th August 2012
quotequote all
No confusion by you - that is exactly right.

You are probably not given the personal allowance as HMRC are aware of your self-employment from prevoius tax returns.

David

NiceCupOfTea said:
I'm confused.

If I earn 25% of my income from 1 employment, 25% from another employment (both of which I PAYE) and 50% from self-employment, being on BR for both employments means that I get taxed on the full earnings from each employment (and so effectively overpaying as my personal allowance is not taken into account). Then, when I fill in my tax return with my self employed earnings/allowable expenses, they know what my total taxable income is and what I have paid in tax already (both PAYE and payments on account) so can calculate the remaining tax to be paid. The following year's payments on account are based on the previous year's.

That's how I understood it worked anyway!

Is this not the case?

Should I have tax codes for both the employments? What's the benefit of this to me? It seems the only difference will be paying less at source and more in individual payments twice a year, which is what I don't want!

NiceCupOfTea

25,595 posts

281 months

Wednesday 8th August 2012
quotequote all
sumo69 said:
No confusion by you - that is exactly right.

You are probably not given the personal allowance as HMRC are aware of your self-employment from prevoius tax returns.

David
Cheers!

The problem I am having currently is that they have put one of my employments on a tax code rather than BR. I don't know why, and when I called them about it it was like speaking to a brick wall. Can I ask them to change it back to BR?

Eric Mc

125,758 posts

295 months

Wednesday 8th August 2012
quotequote all
Has your self-employment now ceased?

If it has, did you state a date of cessation on the relevant tax return?

NiceCupOfTea

25,595 posts

281 months

Wednesday 8th August 2012
quotequote all
No - all employments and selfemployment is ongoing.

My employer cocked up 18 months ago and paid me somebody else's (much larger!) salary for 4 months, meaning that I then earned nothing for 4 months after while they adjusted it. Effectively I earned a lot more via PAYE in the first tax year and a lot less in the next tax year. I wonder if this is what caused them to put me on a tax code...

Eric Mc

125,758 posts

295 months

Wednesday 8th August 2012
quotequote all
They do operate off historic data - which may not be relevant at all for the current year. Your self assessment return should sort it all out - eventually.

sumo69

2,164 posts

250 months

Wednesday 8th August 2012
quotequote all
Then call the tax office and request your code is reissued back to BR - I cannot see why they would object though not strictly in accordance with the regulations.

David

NiceCupOfTea

25,595 posts

281 months

Thursday 9th August 2012
quotequote all
sumo69 said:
Then call the tax office and request your code is reissued back to BR - I cannot see why they would object though not strictly in accordance with the regulations.

David
Exactly what I did do! Woman was very unhelpful and accused me of telling them porkies or else they wouldn't have changed it in the first place - just went round and round in circles so hung up!

Will give them a call again and hope to speak to somebody who knows their stuff wink

sumo69

2,164 posts

250 months

Thursday 9th August 2012
quotequote all
If not, you will have to learn to put £150 a month in a savings account so the funds are available to pay the tax when due on Jan 31 and the payment on account due 31 July.

David