Incorrect tax code - charged at 20% or 40%?
Discussion
Assume that I have no idea what I'm talking about when it comes to tax;
My tax code for this financial year is around £1500 too high.
Will I pay tax on this amount at my marginal rate of 40% or at 20%?
If it's 40% I'll probably put an extra £1500 into my SIPP to offset the tax.
Would that work?
I feel the need for an accountant.
Eric
My tax code for this financial year is around £1500 too high.
Will I pay tax on this amount at my marginal rate of 40% or at 20%?
If it's 40% I'll probably put an extra £1500 into my SIPP to offset the tax.
Would that work?
I feel the need for an accountant.
Ericrfisher said:
Assume that I have no idea what I'm talking about when it comes to tax;
My tax code for this financial year is around £1500 too high.
Will I pay tax on this amount at my marginal rate of 40% or at 20%?
If it's 40% I'll probably put an extra £1500 into my SIPP to offset the tax.
Would that work?
I feel the need for an accountant.
Eric
if your tax code is too high (and therefore you're not paying enough tax) HMRC will check after the end of the year and adjust your 2021/22 tax code to correct any over or underpayments. It's pointless putting it into a SIPP (unless you WANT to)My tax code for this financial year is around £1500 too high.
Will I pay tax on this amount at my marginal rate of 40% or at 20%?
If it's 40% I'll probably put an extra £1500 into my SIPP to offset the tax.
Would that work?
I feel the need for an accountant.
EricThe rate that you're paying/not paying depends on what your salary is
They are effectively negative and means you have no tax free allowance.
They add on the K code to your earned income so that you pay more tax.
So if you had a K code that was £1500 more than you thought, you would be pay tax on an extra £1500 worth of income, at 40% or 45%.
You get one by earning more than £125K, as your personal allowance disappears at a rate of £1 for every £2 earned above £100K a year.
They add on the K code to your earned income so that you pay more tax.
So if you had a K code that was £1500 more than you thought, you would be pay tax on an extra £1500 worth of income, at 40% or 45%.
You get one by earning more than £125K, as your personal allowance disappears at a rate of £1 for every £2 earned above £100K a year.
Edited by supersport on Thursday 25th March 16:55
supersport said:
They are effectively negative and means you have no tax free allowance.
They add on the K code to your earned income so that you pay more tax.
So if you had a K code that was £1500 more than you thought, you would be pay tax on an extra £1500 worth of income, at 40% or 45%.
You get one by earning more than £125K, as your personal allowance disappears at a rate of £1 for every £2 earned above £100K a year.
K code often happens where you haven't paid enough tax the previous year and even fully eliminating the current year's allowance wouldn't be sufficient to recover the underpaid tax. It happens if you had a higher than usual bonus, or you received lots of taxable benefits declared on your P11d.They add on the K code to your earned income so that you pay more tax.
So if you had a K code that was £1500 more than you thought, you would be pay tax on an extra £1500 worth of income, at 40% or 45%.
You get one by earning more than £125K, as your personal allowance disappears at a rate of £1 for every £2 earned above £100K a year.
Edited by supersport on Thursday 25th March 16:55
Theoretically earning over £125k shouldn't automatically result in a K code but it can do because normally of bonuses and arrears payments.
Good point, it does take more than just earnings.
I guess if you earn the £125K and had no benefits or under paid tax you would just get a zero tax code.
I imagine there aren't many like that, I would be surprised to get that level of pay and no health care/insurance or something due tax.
I guess if you earn the £125K and had no benefits or under paid tax you would just get a zero tax code.
I imagine there aren't many like that, I would be surprised to get that level of pay and no health care/insurance or something due tax.
rfisher said:
They were for 2019/2020 tax year.
£0 for 2020/2021 tax year.
So it looks like you didn't get tax relief for them last year (19/20) which means you overpaid tax in 19/20, and HMRC increased your tax allowance for 20/21 to effectively refund the overpaid tax.£0 for 2020/2021 tax year.
ETA or was the tax code 1400L in 2019/20 and you havent told HMRC that you are no longer paying professional subscriptions?
rfisher said:
Still not sure about this, but it must happen all the time, so I had presumed that it would be an easy one for the PH finance gurus.
No?
I thought it HAD ben answered. Your tax code is too high for this year. HMRC will correct it next year (by reducing it to 1100). So the tax you’ve underpaid this year will be collected next yearNo?
The marginal tax rates shouldn’t matter.
Edited by Countdown on Saturday 27th March 08:29
HMRC's collection of taxes on Benefits in Kind is almost always a year in arrears. This is because employers only notify HMRC about the Benefit in Kind an employee has had after the tax year has ended.
For example, when the current tax year (2020/21) ends on 5 April 2021, the employer will send a Form P11D to HMRC telling HMRC what benefit the empl;oyee HAD in tax year 2020/21. As that tax year is now over, HMRC will amend the employee's tax code for 2021/22 and collect the BIK tax for 2020/21 in tax year 2021/22.
Most of the time this does not matter but for large benefits, such as company cars, this can be problematic. If a significant change to a large Benefit in Kind (such as ta car) occurs, it is beset for the employee to contact HMRC directly shortly after the change occurred so that HMRC can update the Tax Code amendment in the tax year where the change actually happened.
For example, when the current tax year (2020/21) ends on 5 April 2021, the employer will send a Form P11D to HMRC telling HMRC what benefit the empl;oyee HAD in tax year 2020/21. As that tax year is now over, HMRC will amend the employee's tax code for 2021/22 and collect the BIK tax for 2020/21 in tax year 2021/22.
Most of the time this does not matter but for large benefits, such as company cars, this can be problematic. If a significant change to a large Benefit in Kind (such as ta car) occurs, it is beset for the employee to contact HMRC directly shortly after the change occurred so that HMRC can update the Tax Code amendment in the tax year where the change actually happened.
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