Understanding my tax codes.

[Medic-one]

I wonder if anyone here could enlighten me a little bit about tax codes, as i'm getting a bit confused with it all.

I moved to England 13 years ago, straight in a PAYE (NHS) job, so never really had to do much regarding tax codes, as it was all done automatically.

I have a fulltime job (Ambulance service) which is paid monthly, and since last October I've also started doing bank shifts in A&E at my local hospital, but only about 3 to 4 shifts a month, which is a separate Employer, and this is paid weekly.

Going through the payslips of my fulltime job, I was on taxcode 1189L CUMU since April 2018, which i believe means i could earn £11,890 before being taxed.

Then in April 2019 my tax code changed to 1254L CUMU but 2 months later, in June it went to 1218L CUMU which is still is at the moment.

My Taxcode for my bank job from October 2018 till April 2019 was 0T NONCUM and then it changed to 0T CUMUL, but in June this year it changed again to BR CUMUL.

Last week (30 aug) i received an additional pay of a couple of hundred pound from my bank job for "Pension arrears", which was a nice surprise but did make me wonder if my tax codes have been correct.


Is it normal for a tax code to keep changing, I thought it only changed once a year in April ?

And would my fulltime tax code have dropped from 1254L to 1218L due to my bank job ?

[Eric Mc]

Tax Codes can change at any time - usually based on HMRC receiving updated information about your earnings and employment situation provided to them by your employer(s) or yourself.

The problem is that HMRC assumes that the situation they are reflecting in the codes is going to last. Sometimes it does, sometimes it doesn't. And if the situation changes, they may not adjust the coding in accordance with the changes.

The standard code for 2019/20 (the current tax year) for a person with no complications is 1250L i.e. tax allowances of £12,500.

If you have two employments, HMRC has to juggle the allocation of the code between those two employments.

If the salary from Employment 1 is sufficient to mop up all your tax allowances, then the full code of 1250L will be allocated to Employment 1. Therefore, Employment 2 will have no allowances available for offset against that salary. There are usually two scenarios here. If your overall income from Employment 1 and 2 combined is insufficient to push you into the higher rate tax bracket, then Employment 2 will receive a BR code. This means that the salary from Employment 2 will be taxed in full at 20% (the Basic Rate of tax).

If your combined salaries DO push you into the Higher Rate tax bracket, then Employment 2 will receive a D0 code. This means that all the salary from Employment 2 will be taxed at 40%.

In reality, there is a chance that, if your salary from Employment 1 is below the Higher Rate band and SOME of the salary from your second employment is also liable to be taxed at 20%, then having all that second salary taxed using a D0 code will mean that you will pay too much tax.

Conversely, if the second code is only BR, then it is likely you may pay too little tax on that second employment.

[Medic-one]

Thanks Eric, that makes a bit more sense now.

[irc]

Eric Mc said:

If you have two employments, HMRC has to juggle the allocation of the code between those two employments.

If the salary from Employment 1 is sufficient to mop up all your tax allowances, then the full code of 1250L will be allocated to Employment 1. Therefore, Employment 2 will have no allowances available for offset against that salary. There are usually two scenarios here. If your overall income from Employment 1 and 2 combined is insufficient to push you into the higher rate tax bracket, then Employment 2 will receive a BR code. This means that the salary from Employment 2 will be taxed in full at 20% (the Basic Rate of tax).

If your combined salaries DO push you into the Higher Rate tax bracket, then Employment 2 will receive a D0 code. This means that all the salary from Employment 2 will be taxed at 40%.

In reality, there is a chance that, if your salary from Employment 1 is below the Higher Rate band and SOME of the salary from your second employment is also liable to be taxed at 20%, then having all that second salary taxed using a D0 code will mean that you will pay too much tax.

Conversely, if the second code is only BR, then it is likely you may pay too little tax on that second employment.

This scenario will apply to me after starting new job. Current pension £22'500k uses up tax allowance. Previously my job was taxed at BR and there was no issue as combined total was below higher tax threshold. New job with just a few thousand more not so simple.

As a resident of Scotland my higher rate of 41% starts at £43'430 rather than the UK £50k (go SNP!!!).

I don't have an exact salary as rates vary slightly depending on nights/weekends work but estimate salary will be approx £22'500 giving a total along with pension of £45k. Around £1500 into higher rate.

So if I kept the BR (actually SBR for Scotland) I would underpay by approx £300. On the other hand if I was taxed on it at higher rate I would pay thousands too much.

For a marginal underpayment can this be corrected by adjusting the tax code next year? Conversely if I was overtaxed would I need to submit a tax return to get that cash back?

The other issue is that I understand as a higher rate taxpayer I lose the Marriage Tax allowance of £1250. So that is another £250 extra I'll pay in SNP income tax.

If I calculate in March next year I'll be £1500 into the higher rate can I make a private pension contribution (have existing scheme from previous job) big enough to get relief of all the higher rate tax I pay can I then keep the Marriage Tax Allowance as I won't pay higher rate tax that year?


As I understand it on any earnings over £43'430 I'll be losing nearly 2/3rds in deductions - 41% tax, 9.5% superan, and NI at 12% Go SNP!!!!