Tax return - deduct through tax code

[john_p]

On my tax return there is this option:

"If you owe tax for 2007-08 and have a PAYE tax code, do you want us to try to collect the tax due (up to £2,000) through your tax code for 2009-10?"

If I tick this, does that mean I don't have to pay before the 31st, and they'll just take it over the 12 months, leaving me to fritter away the savings account on pointless tat?

[Pferdestarke]

john_p said:

On my tax return there is this option:

"If you owe tax for 2007-08 and have a PAYE tax code, do you want us to try to collect the tax due (up to £2,000) through your tax code for 2009-10?"

If I tick this, does that mean I don't have to pay before the 31st, and they'll just take it over the 12 months, leaving me to fritter away the savings account on pointless tat?

Yes.

[mark69sheer]

john_p said:

On my tax return there is this option:

"If you owe tax for 2007-08 and have a PAYE tax code, do you want us to try to collect the tax due (up to £2,000) through your tax code for 2009-10?"

If I tick this, does that mean I don't have to pay before the 31st, and they'll just take it over the 12 months, leaving me to fritter away the savings account on pointless tat?

Correct. If you ask them to collect through 2009-2010 tax year they will deduct the shortfall from next years weekly or monthly allowances. This is a good way to deal with an underpayment as the payments are spread and you don't pay interest.
You could if you have a company car though as well end up with a K code prefix.

This is where instead of having any allowances left you are taxed on everything you earn plus a bit more as the tax code is a negative that adds on to your weekly / monthly amount before a calculation is made to deduct tax.
I am a payroll professional with 20 years experience but sadly can't get past the interview stage thanks to endemic ageism.

[Piglet]

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

[rude-boy]

Personally i would pay the money.

Last time i had funds collected through my tax code I ended up seriously out of pocket as they forgot to put it back to the correct code the following year!

[john_p]

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

Hmm it's definitey enabled still. This relates to some dividend income.

[mark69sheer]

john_p said:

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

Hmm it's definitey enabled still. This relates to some dividend income.

If its dividend income surely you must have added those details to an accountant passed return in which case a lump sum is usually payable.

I thought only erroneous underpayments were dealt by code changes. Taxable anounts due to dividends are usually dealt with by a lump sum payable.

Edited by mark69sheer on Monday 26th January 20:10

[Piglet]

john_p said:

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

Hmm it's definitey enabled still. This relates to some dividend income.

It might be worth a google....I'm pretty sure I read that there was a problem...(I could of course have been hallucinating!)

[LeighW]

You had to submit your return by 30th December to have any underpayment coded into next year, so you're too late unfortunately.

Edited by LeighW on Monday 26th January 20:32

[bleesh]

There IS a problem - that option SHOULD have been disabled after 31 December 2008.

Seems to be some confusion as to what happens if you ticked that box - like I did - if you filed during January.

Technically HMRC can charge you interest on the underpayment or at least for not paying by 31st January - and I think technically it is up to you to notice this and not for them to tell you - i.e. THEIR mistake that YOU (with your full knowledge of the tax system) should have noticed and not ticked the box.

In practice they "may" take a lenient view.

Could always phone and ask I suppose.............

Steve

[Andyuk911]

bleesh said:

There IS a problem - that option SHOULD have been disabled after 31 December 2008.

Seems to be some confusion as to what happens if you ticked that box - like I did - if you filed during January.

Technically HMRC can charge you interest on the underpayment or at least for not paying by 31st January - and I think technically it is up to you to notice this and not for them to tell you - i.e. THEIR mistake that YOU (with your full knowledge of the tax system) should have noticed and not ticked the box.

In practice they "may" take a lenient view.

Could always phone and ask I suppose.............

Steve

SPOT on Steve .. This is what Working Lunch said ... worth a look through the BBC iPlayer ...

[john_p]

The HMRC website is pretty clear in a different section:

"30 December: Online returns (for tax to be collected through your tax code)
If you send us your tax return online you must send it back by this date if you want us to collect tax through your tax code (if possible) where you owe less than £2,000. Otherwise you can send it to us up to 31 January."

Best not risk it

[Eric Mc]

The limit for such Coding Adjustments was raised from £500 to £2,000 a couple of years ago - meaning that many people who paid their SElf Assessment tax bills directly were caught out when their PAYE Codes took a hammering - trying to collect £2,000 through a PAYE Code absolutely murders your code.

Also, up to a couple of years ago, the default option was for the Revenue to automatically adjust the PAYE coding for such tax liabilities. Following the increase from £500 to £2,000, the accounting and tax bodies complained to the Revenue saying that this "default" setting was now inappropriate because the tax collectable was too great. Therefore, the "default" setting has been reversed i.e. it is now the TAXPAYER who must elect for tax to be collected through the coding, the Revenue can no longer do this automatically.

[happy snapper]

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

I think its because its "unearned" income your personal allowances are only for income from work? I might be wrong

[Mr MoJo]

mark69sheer said:

john_p said:

On my tax return there is this option:

"If you owe tax for 2007-08 and have a PAYE tax code, do you want us to try to collect the tax due (up to £2,000) through your tax code for 2009-10?"

If I tick this, does that mean I don't have to pay before the 31st, and they'll just take it over the 12 months, leaving me to fritter away the savings account on pointless tat?

Correct. If you ask them to collect through 2009-2010 tax year they will deduct the shortfall from next years weekly or monthly allowances. This is a good way to deal with an underpayment as the payments are spread and you don't pay interest.
You could if you have a company car though as well end up with a K code prefix.

This is where instead of having any allowances left you are taxed on everything you earn plus a bit more as the tax code is a negative that adds on to your weekly / monthly amount before a calculation is made to deduct tax.
I am a payroll professional with 20 years experience but sadly can't get past the interview stage thanks to endemic ageism.

This has just happened to me, I've gone onto a K code for 2009-2010. In the letter I got through it explained it was due to the underpayment 'we wrote to you about recently'. Really, you wrote to me, I'm sure I'd remember that ??
I don't really understand how I underpaid tax when I pay it on PAYE.

Any how, decided to stick with the K code as opposed to offer payment in full.

Have I done the right thing, or is this going to cripple me monthly ?

Edited by Mr MoJo on Tuesday 27th January 10:18

[mark69sheer]

Mr MoJo said:

mark69sheer said:

john_p said:

On my tax return there is this option:

"If you owe tax for 2007-08 and have a PAYE tax code, do you want us to try to collect the tax due (up to £2,000) through your tax code for 2009-10?"

If I tick this, does that mean I don't have to pay before the 31st, and they'll just take it over the 12 months, leaving me to fritter away the savings account on pointless tat?

Correct. If you ask them to collect through 2009-2010 tax year they will deduct the shortfall from next years weekly or monthly allowances. This is a good way to deal with an underpayment as the payments are spread and you don't pay interest.
You could if you have a company car though as well end up with a K code prefix.

This is where instead of having any allowances left you are taxed on everything you earn plus a bit more as the tax code is a negative that adds on to your weekly / monthly amount before a calculation is made to deduct tax.
I am a payroll professional with 20 years experience but sadly can't get past the interview stage thanks to endemic ageism.

This has just happened to me, I've gone onto a K code for 2009-2010. In the letter I got through it explained it was due to the underpayment 'we wrote to you about recently'. Really, you wrote to me, I'm sure I'd remember that ??
I don't really understand how I underpaid tax when I pay it on PAYE.

Any how, decided to stick with the K code as opposed to offer payment in full.

Have I done the right thing, or is this going to cripple me monthly ?

Edited by Mr MoJo on Tuesday 27th January 10:18

As you say better to pay monthly than in one go and it is in effect an interest free loan.

How much it will cripple you depends on the amount you owe in underpayments.

[Eric Mc]

happy snapper said:

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

I think its because its "unearned" income your personal allowances are only for income from work? I might be wrong

Yes, you are wrong

ANY sort of income tax due is collectable through a tax coding (it doesn't matter what type of income generated the tax) - provided the tax amount is :

£2,000 or less
The tax payer has ELECTED to pay the tax this way.

The choice is the taxpayer's - not the Revenue's.

Your understanding of "earned" v' "unearned" income is obviously flawed as well. ALL income generated from doing "work", whether as an employee/director or through a self employed trading activity, is deemed to be "earned" income.
Income Tax is also levied on "unearned" income as well - such as rental income or interest received from banks/building societies. So tax arising from ANY of the above sources COULD be collected through an adjustment to the PAYE Coding - assuming the taxpayer WANTS to pay the tax that way.

Edited by Eric Mc on Tuesday 27th January 10:28

[happy snapper]

Eric Mc said:

happy snapper said:

Piglet said:

Isn't there a problem with this that the option should have been disabled as this can't be done after Dec 31st?

AFAIK it's not available for all types of tax - I couldn't do it with income on rental property.

I think its because its "unearned" income your personal allowances are only for income from work? I might be wrong

Yes, you are wrong

ANY sort of income tax due is collectable through a tax coding (it doesn't matter what type of income generated the tax) - provided the tax amount is :

£2,000 or less
The tax payer has ELECTED to pay the tax this way.



The choice is the taxpayer's - not the Revenue's.

Your understanding of "earned" v' "unearned" income is obviously flawed as well. ALL income generated from doing "work", whether as an employee/director or through a self employed trading activity, is deemed to be "earned" income.
Income Tax is also levied on "unearned" income as well - such as rental income or interest received from banks/building societies. So tax arising from ANY of the above sources COULD be collected through an adjustment to the PAYE Coding - assuming the taxpayer WANTS to pay the tax that way.

Edited by Eric Mc on Tuesday 27th January 10:28

Sounds plausable my situation is slightly confussed (not just me) I dont pay PAYE yet I do have a P45 from not working hope to get it all sorted after 5 April when I wind the bisiness up.. Thanks for the info.

[Eric Mc]

Who gave you a P45 and what does it show?

[Piglet]

Eric Mc said:

Who gave you a P45 and what does it show?

He had funds released from a pension fund that was being wound up, they deducted tax at the standard rate (I think?) although his income is unlikely to reach the tax threshold for this tax year and they issued a P45 to him.