Income Tax
 

DO we have any knowledgeable tax experts?

My income tax is a mess despite me being PAYE.

My tax code changed after week one of this tax year (paid weekly) from the new rate of 9xxL to 477L. meaning I pay more tax

I called the tax office and was nothing but confused about the replies to my questions.
I understand that I owe around £960 (from 10/11)and my tax code has been adjusted to recoup this amount.

What gets more confusing is that I have had a bonus paid to me this week and as such I have paid a great wack in tax. So far this tax year (from apr 1st) I have paid £2322 in tax.

the way I have tried to look at this is as follows

I am in a tax bracket to pay £20% income tax. the £2322 paid so far equates to 30% of my taxable earning s so far. which in turn means I have paid an extra 10%.
This extra 10% totals £776 which I believe should be the contribution towards the debt, the tax office however has said that due to my large payout this week I may have paid tax at 40%.

Is anyone able to help decipher whats going on?

The tax office has said they would let me know once the debt is paid by way of a notification of change of tax code. HOWEVER, they have not notified me of this current change to 477L.
Whats worse is that they 'apparently' instructed my employer to change my tax code last year so they can recoup £1,800 from the year before (09/10). The advisor thought this had happened but my payslips show they didn't and my code was 810L. This extra debt my still exist but until HMRC get my tax return form last year they do not know for sure.

I have very little faith in getting any kind of notification from the tax office, I should had had notice last year of the change (which doesn't appear to have happened) and I should have been notified this year. my employer also should have received a notice last year however as my tax code did not change though the one HMRC requested who's to say they were actually informed at all?

I'm proper confused.

Considering the amounts involved and the complexity I would see an accountant who will deal with this as a one off case , I know you are employed as opposed to self employed but I see no reason not to engage one .
Agree a fee prior to him taking it on, he could save you a lot of money for a few hundred pounds outlay.

I have used accountants for 30 years of self employment and on the whole they know their stuff.

Just my opinion of course.

See my post below from another thread:

http://www.the75andztclub.co.uk/foru...=145255&page=3

I was classed as 'employed PAYE' for 25 years and as part of my 'toolbag' I needed to understand comprehensively the taxation system. However, I still had an accountant to sign off my simple 'schedule D expense' claims for every one of those years.

I was then S/E for 15 years and the same accountant handled all my returns, and for the Ltd. company that I directed. As a consequence I never had a worry or a problem in all that time and it did not cost a fortune but rather more than paid for itself. The fact that HMRC get audited returns, on time, makes them inclined to treat you with just a bit of caution and respect!

As already advised, get yourself an accountant. Your tax history, especially as it is PAYE, shows signs of an almighty error having been made and you need a forensic mind to sort it. Just because they are HMRC does not equate to infallible.

It is not easy to work out exactly what has happened from the figures provided.

As you were paid a bonus in the first month of the tax year, you will get taxed as though you are going to earn the same amount every month for the rest of the tax year.

If you are on tax code 477L you will not get taxed on 4,770 divided by 12 in month one and then 20% on amounts after and then 40% on amounts in over the higher rate.

Next month you may well get a correction as you will then be allowed 4,770 divided by 12 xly by 2 (for two months) tax free.

The whole amount for the year is effectively pro rata up to the end of the tax year.

If you have an 'X' after your tax code the above is different, but I am guessing you do not.

For Example:

MTH 1 (April 2013) Tax Code 477L - Ignoring 6th/5th etc

Earnings £1,000 + Bonus £1,000

Total £2,000
Less tax free of 4770 divided by 12 xly by one (First Month) = £397

Thus tax at 20% on £1,603 = £320.00

MTH 2 (May 2013) Tax Code 477L

Earnings £1,000 Bonus £0

Thus year to date £3,000
Less tax free of 4770 divided by 12 xly by two (Second Month) = £795

Thus tax at 20% on £2,205 = £440 less £320 (Paid in Month 1) = £120

MTH 2 (May 2013) Tax Code 944L

Less tax free of 9440 divided by 12 xly by two (Second Month) = £1,573

Thus tax at 20% on £1,427 = £285.33 thus you have overpaid by way of different tax code £155 and this amount goes to clear prior underpayments

I have avoided NI and 40% issues to try and make it reasonably simply to understand the mechanism

As you can probably see it is fairly complex, but I think (judging from the amount of tax you paid) you are going to get a big correction in MTH2

...

Did any of that waffle make any sense in the end?!

It did, to a degree. so thank you. I have just changed employers so I am going to wait a couple of months and see what happens to my code before I dig deeper.