Anyone understand tax codes?
Discussion
I have spent all my career either in the Army or contracting so I have had no real exposure to this stuff before. It was either sorted at source in the military or I chucked the lot at an accountant and got him to sort it.
My new role is a permanent role paying 50k and I also receive an Army pension of 8k a year. Obviously both these are taxed and this month I took home 407 for my monthly pension from the Army and just over 2000 for my new role.
Clearly 2000 is a bit low. So I looked at the tax code and it was D0. Phoned up the Tax office today and the young lady said it was an error and that I should be on 798L for my Pension and 386T for my main salary. Does this sound correct?
When I look these up it says my tax free income for my Pension is 7,980 and the tax free income for my main income is 3,860. This still seems wrong to me.
I have been trying to look into this but to be honest I find it all a bit baffling.
My new role is a permanent role paying 50k and I also receive an Army pension of 8k a year. Obviously both these are taxed and this month I took home 407 for my monthly pension from the Army and just over 2000 for my new role.
Clearly 2000 is a bit low. So I looked at the tax code and it was D0. Phoned up the Tax office today and the young lady said it was an error and that I should be on 798L for my Pension and 386T for my main salary. Does this sound correct?
When I look these up it says my tax free income for my Pension is 7,980 and the tax free income for my main income is 3,860. This still seems wrong to me.
I have been trying to look into this but to be honest I find it all a bit baffling.
https://www.gov.uk/tax-codes
yeah, the proposed codes seem spot on. Standard tax code we all start off with (unless you earn over £110k) is 1185L which basically means you can earn 11850 before you pay any tax.
What they have done is split the code proportionally between your income sources, rather than assign 1185L to your main earning and 0 to your pension. They are assigning the majority of your tax free allowance to the pension, so its tax free and then the remainder to your other earnings.
yeah, the proposed codes seem spot on. Standard tax code we all start off with (unless you earn over £110k) is 1185L which basically means you can earn 11850 before you pay any tax.
What they have done is split the code proportionally between your income sources, rather than assign 1185L to your main earning and 0 to your pension. They are assigning the majority of your tax free allowance to the pension, so its tax free and then the remainder to your other earnings.
Edited by bogie on Monday 30th April 19:11
But my pension isn't tax free, I am only getting a 407 out of 665 a month?
According to my calculations I am paying 40% tax on my Pension and 50% tax on my wages!
Or I guess my pension code has changed as well? and next month I will get the entire pension amount?
According to my calculations I am paying 40% tax on my Pension and 50% tax on my wages!
Or I guess my pension code has changed as well? and next month I will get the entire pension amount?
Edited by 272BHP on Monday 30th April 20:20
I wasn't in a position to calculate it last evening, now I can here's my take on it.
As your taxable income (gross less personal allowance) is just less than the 40% tax threshold you will only be taxed at 20%, so about £9,226 pa.
And don't forget National Insurance at 12% on any earnings over £8,424 pa, which will be about £5,947 pa.
I think you should be netting about £3,570 per month when it is all sorted out.
So you get to keep about 74% of your gross.
As your taxable income (gross less personal allowance) is just less than the 40% tax threshold you will only be taxed at 20%, so about £9,226 pa.
And don't forget National Insurance at 12% on any earnings over £8,424 pa, which will be about £5,947 pa.
I think you should be netting about £3,570 per month when it is all sorted out.
So you get to keep about 74% of your gross.
TwigtheWonderkid said:
bmwmike said:
Depending on age would it be worth paying the pension into a SIPP to reduce the tax?
Does the new employer have a pension? Pay the army pension into the work pension, and get 40% tax back. bogie said:
TwigtheWonderkid said:
bmwmike said:
Depending on age would it be worth paying the pension into a SIPP to reduce the tax?
Does the new employer have a pension? Pay the army pension into the work pension, and get 40% tax back. 1. There probably should be a workplace pension arrangement in place unless OP opts out.
2. How will OP get 40% tax back by putting money into pension when only paying basic rate?
JeremyH5 said:
bogie said:
TwigtheWonderkid said:
bmwmike said:
Depending on age would it be worth paying the pension into a SIPP to reduce the tax?
Does the new employer have a pension? Pay the army pension into the work pension, and get 40% tax back. 1. There probably should be a workplace pension arrangement in place unless OP opts out.
2. How will OP get 40% tax back by putting money into pension when only paying basic rate?
TwigtheWonderkid said:
JeremyH5 said:
bogie said:
TwigtheWonderkid said:
bmwmike said:
Depending on age would it be worth paying the pension into a SIPP to reduce the tax?
Does the new employer have a pension? Pay the army pension into the work pension, and get 40% tax back. 1. There probably should be a workplace pension arrangement in place unless OP opts out.
2. How will OP get 40% tax back by putting money into pension when only paying basic rate?
And you can only get 40% relief up to the amount of tax you have paid at that percentage. Tricky for people on the cusp of the two rates.
JeremyH5 said:
I wasn't in a position to calculate it last evening, now I can here's my take on it.
As your taxable income (gross less personal allowance) is just less than the 40% tax threshold you will only be taxed at 20%, so about £9,226 pa.
And don't forget National Insurance at 12% on any earnings over £8,424 pa, which will be about £5,947 pa.
I think you should be netting about £3,570 per month when it is all sorted out.
So you get to keep about 74% of your gross.
3570! I can't see it being anything like that much surely - happy if you are right though!As your taxable income (gross less personal allowance) is just less than the 40% tax threshold you will only be taxed at 20%, so about £9,226 pa.
And don't forget National Insurance at 12% on any earnings over £8,424 pa, which will be about £5,947 pa.
I think you should be netting about £3,570 per month when it is all sorted out.
So you get to keep about 74% of your gross.
Not sure about paying the pension into a pot as I am already 52 and I can't see myself staying at this place too long anyway as it seems like a contract role in all but name - no real stability and 0 benefits.
My Army pension does go to the full amount when I hit 55 so should go up by another 60% or so - not sure if it is worth investing that somehow.
Thanks for all the replies by the way, answered a lot of questions.
JeremyH5 said:
TwigtheWonderkid said:
JeremyH5 said:
bogie said:
TwigtheWonderkid said:
bmwmike said:
Depending on age would it be worth paying the pension into a SIPP to reduce the tax?
Does the new employer have a pension? Pay the army pension into the work pension, and get 40% tax back. 1. There probably should be a workplace pension arrangement in place unless OP opts out.
2. How will OP get 40% tax back by putting money into pension when only paying basic rate?
And you can only get 40% relief up to the amount of tax you have paid at that percentage. Tricky for people on the cusp of the two rates.
40% income tax is levied on any gross PAYE earnings over £46,350
Phone HMRC and get them to assign all of your tax code to your employment. You don't pay National Insurance on pension income, so using part of your allowance on your pension will only save you the 20% tax.
Using the allowance on your employment income will save you the 20% tax and the 12% (or whatever it is) NI.
I get income from 2 pensions and a part time job, plus some self-employment. Every year when I get my coding notice, I phone the tax office and get them to adjust the split of my tax code. My total income is around £20k, and I have paid less than a fiver in NI over the last 5 years since I realised that you could do this.
Not a good idea unless you already qualify for the maximum state pension. I've got 30 years of NI contributions from when I was working full time. No point in me paying any more NI.
Using the allowance on your employment income will save you the 20% tax and the 12% (or whatever it is) NI.
I get income from 2 pensions and a part time job, plus some self-employment. Every year when I get my coding notice, I phone the tax office and get them to adjust the split of my tax code. My total income is around £20k, and I have paid less than a fiver in NI over the last 5 years since I realised that you could do this.
Not a good idea unless you already qualify for the maximum state pension. I've got 30 years of NI contributions from when I was working full time. No point in me paying any more NI.
Exactly, the Personal TAX Allowance is exactly what it says on the tin, a TAX allowance.
NI has its own set of "allowances" - although they refer to these allowances as "thresholds" and "earnings limits". They bear no relation to tax thresholds,
Tax and NI are very different animals and are not really linked in any meaningful way. It just so happens that they are collected by the same outfit (HMRC) and are deducted from salaries through the PAYE system, which is, in reality, a PAYE Tax and NI system.
NI has its own set of "allowances" - although they refer to these allowances as "thresholds" and "earnings limits". They bear no relation to tax thresholds,
Tax and NI are very different animals and are not really linked in any meaningful way. It just so happens that they are collected by the same outfit (HMRC) and are deducted from salaries through the PAYE system, which is, in reality, a PAYE Tax and NI system.
Pension payments (contributions) or pension income?
My gross pension income is about £8k pa, part time employment a shade under £6k, self-employment profit around £5k.
The only times I've paid NI in the past few years is when I've done an extra shift at work and also paid a bit of tax that month. I get the tax refunded the following month, as I've allocated enough of my tax allowance to the employment to allow for a couple of days of overtime during the tax year.
Any "unused" allowance is offset against tax due from the self-employment, which I then pay via a reduced tax code the following year.
If NI doesn't work how I thought it works, how is it calculated in my circumstances?
My gross pension income is about £8k pa, part time employment a shade under £6k, self-employment profit around £5k.
The only times I've paid NI in the past few years is when I've done an extra shift at work and also paid a bit of tax that month. I get the tax refunded the following month, as I've allocated enough of my tax allowance to the employment to allow for a couple of days of overtime during the tax year.
Any "unused" allowance is offset against tax due from the self-employment, which I then pay via a reduced tax code the following year.
If NI doesn't work how I thought it works, how is it calculated in my circumstances?
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