Two income sources, D0 tax code
Discussion
Hi all, asking this one on behalf of a friend who's not so financially minded
He left the army ~5 years ago and has worked in the private sector since earning a salary and claiming his army pension. Hasn't filed a tax return, in his words, "ever"
Salary is ~£35kpa, pension ~£9kpa. For the last five years he's only paid the 20% tax band on both of these income sources (both had 6xxxL tax codes), even though combined they exceed the bracket. Of this I've only just become aware and without wanting to worry him I'm concerned he may be coming up for a shock with the revenue.
Recently he received a letter from HMRC saying they were giving the MOD a D0 tax code for this coming financial year, as I understand it this code is given when the revenue become aware that you have two income sources that combined my tip you into the 40% bracket. Meaning he's now being taxed at 40% for his pension. He phoned the office his pension tax is handled through and told them what he was earning (after I pushed him) - they apparently told him not to worry and they'll leave the D0 code in place this year...
Now...
I'm pretty sure that he should be paying additional tax for the amount he's earning in the 40% bracket, and should have done for the last five years, is that the case?
I know HMRC are installing a new computer system and trying to push everyone's taxes into one central database, he's kind of hoping they aren't going to pick up on the last few years of this, but given my own experience with the HMRC I doubt they'll be letting it go. My rough calculations put the amount extra he should have paid at £8-9k - if they do decide to chase him what kind of fees and penalties might they introduce?
Lastly, and semi-connectedly, he also claims child tax credits but has "forgotten" to put his army pension income on the form. I'm not familiar with the tax credit system but I assume that would have affected the amount of credit they give him?
I'm not one to enjoy being the bearer of bad news but I think this year might be an expensive one for him
He left the army ~5 years ago and has worked in the private sector since earning a salary and claiming his army pension. Hasn't filed a tax return, in his words, "ever"
Salary is ~£35kpa, pension ~£9kpa. For the last five years he's only paid the 20% tax band on both of these income sources (both had 6xxxL tax codes), even though combined they exceed the bracket. Of this I've only just become aware and without wanting to worry him I'm concerned he may be coming up for a shock with the revenue.
Recently he received a letter from HMRC saying they were giving the MOD a D0 tax code for this coming financial year, as I understand it this code is given when the revenue become aware that you have two income sources that combined my tip you into the 40% bracket. Meaning he's now being taxed at 40% for his pension. He phoned the office his pension tax is handled through and told them what he was earning (after I pushed him) - they apparently told him not to worry and they'll leave the D0 code in place this year...
Now...
I'm pretty sure that he should be paying additional tax for the amount he's earning in the 40% bracket, and should have done for the last five years, is that the case?
I know HMRC are installing a new computer system and trying to push everyone's taxes into one central database, he's kind of hoping they aren't going to pick up on the last few years of this, but given my own experience with the HMRC I doubt they'll be letting it go. My rough calculations put the amount extra he should have paid at £8-9k - if they do decide to chase him what kind of fees and penalties might they introduce?
Lastly, and semi-connectedly, he also claims child tax credits but has "forgotten" to put his army pension income on the form. I'm not familiar with the tax credit system but I assume that would have affected the amount of credit they give him?
I'm not one to enjoy being the bearer of bad news but I think this year might be an expensive one for him

There is a general glitch in the new software which is issuing D0 codes where they aren't appropriate.
It is highly unlikely that his ENTIRE army pension should be taxed in full at 40% so having a straight D0 code allocated against it is not correct. HMRC want taxpayers to contact them as soon as they receive one of these duff codings. They are not taking any steps to rectifying individual errors.
It is highly unlikely that his ENTIRE army pension should be taxed in full at 40% so having a straight D0 code allocated against it is not correct. HMRC want taxpayers to contact them as soon as they receive one of these duff codings. They are not taking any steps to rectifying individual errors.
smartie said:
if both income sources previously had 6xxL codes this suggests he may have been getting his personal allowance twice. This could amount to £1300 a year tax underpayment even if he stays in the 20% band?
He says that for last year at least his army pension was given a BD tax code? I think he means BR though as BD isn't a valid code... Might help if he'd saved any of the paperwork the HRMC sent himMy mistake for saying he had two 6xxxL codes, he did mention it before
Is that the big round filing cabinet on the floor.... Opps.
Worst case he has had his tax free allowence twice next best is pension all at 20%.
He needs to go to see the IR play dumb whatever let them take him through it. Get the 2009/10 year sorted first & based upon that I'd either come clean about the history or work out what's due and move it into a seperate do not touch savings account ready to pay up if they ever cone a looking. Of course the latter is tax evasion being naive will make no difference the onus is on the individual.
Good luck but don't post online if he decides to not declare backdated earnings...
Worst case he has had his tax free allowence twice next best is pension all at 20%.
He needs to go to see the IR play dumb whatever let them take him through it. Get the 2009/10 year sorted first & based upon that I'd either come clean about the history or work out what's due and move it into a seperate do not touch savings account ready to pay up if they ever cone a looking. Of course the latter is tax evasion being naive will make no difference the onus is on the individual.
Good luck but don't post online if he decides to not declare backdated earnings...
Wow, about a year since I posted this!!! But I hate leaving open needed threads hence the update...
Have since resigned the job, but still close friends with the chap and do some freelance work when he's busy so in contact
A few weeks ago he got the letter from the HMRC, predictably he'd not contacted them in the interim and they want several thousand off him
Who was it who said the only certainties in life are death and taxes?
Have since resigned the job, but still close friends with the chap and do some freelance work when he's busy so in contact
A few weeks ago he got the letter from the HMRC, predictably he'd not contacted them in the interim and they want several thousand off him
Who was it who said the only certainties in life are death and taxes?

the_lone_wolf said:
Wow, about a year since I posted this!!! But I hate leaving open needed threads hence the update...
Have since resigned the job, but still close friends with the chap and do some freelance work when he's busy so in contact
A few weeks ago he got the letter from the HMRC, predictably he'd not contacted them in the interim and they want several thousand off him
Who was it who said the only certainties in life are death and taxes?
He needs to see an accountant =- quickly.Have since resigned the job, but still close friends with the chap and do some freelance work when he's busy so in contact
A few weeks ago he got the letter from the HMRC, predictably he'd not contacted them in the interim and they want several thousand off him
Who was it who said the only certainties in life are death and taxes?

Why do HMRC think he owes them money?
Eric Mc said:
He needs to see an accountant =- quickly.
Why do HMRC think he owes them money?
We didn't get into the details, and it's been a while since I saw any of the paperwork they sent him a year ago, but I got the impression it was due to having two separate tax offices handle his salary and pension, and not paying sufficient tax due to having additional income each office wasn't aware of?Why do HMRC think he owes them money?
Sounds like the same problem that's is affecting many people - two full sets of Personal Tax Allowances being allocated to BOTH jobs, instead of just one.
The correct situation is that the main tax coding of 647L (equates to the normal persnal tax allowance of £6,475) should be allocated against the job that pays the higher salary.
This should appear as a 647L Code on the payslips and P60.
The other job should be allocated a BR Code i.e. the entire salary has tax deducted at 20% with no allowances being offset.
If the individual is a higher rate tax payer (earns over £43,875 per annum), the code allocated to the second job should be D0 (which means that it is taxed in full at 40% rather than 20%).
The correct situation is that the main tax coding of 647L (equates to the normal persnal tax allowance of £6,475) should be allocated against the job that pays the higher salary.
This should appear as a 647L Code on the payslips and P60.
The other job should be allocated a BR Code i.e. the entire salary has tax deducted at 20% with no allowances being offset.
If the individual is a higher rate tax payer (earns over £43,875 per annum), the code allocated to the second job should be D0 (which means that it is taxed in full at 40% rather than 20%).
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