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TonyTax
TonyTax, Tax Consultant
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Hi, I am currently on PAYE, but on a tax code of K86/M1 for

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Hi, I am currently on PAYE, but on a tax code of K86/M1 for Tax Year ending April 2014 - my code for 2014-2015 is 181. I only owe back tax on Child Benefit (my wife earns below £60k), at an amount of approximately £1000, so my code has been reduced by around £2,500 for this 2014-2015 to recover this. However, I have received an annual bonus payment via payrol today that has also been taxed at the K86 rate, but I have paid all due back tak for previous years (apart from the Child Benefit item mentioned above).
Is is likely that my tax return for 2013-2013 will enable me to recover the tax that I believe I have overpaid as I am currently on K code, despite paying all previous tax due?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

The PAYE system is a cumulative tax system in that it attempts to collect the right amount of tax over 12 months and each amendment to a tax code collects an unerpayment which may have accrued or repays an overpayment which may have accrued. A month one tax code (M1 in the tax code signifies this) means that each months pay is dealt with is isolation from other months. This is usually done to avoid a large underpayment being collected from one month's pay using the cumulative system which may cause financial problems for the taxpayer.

If the K86 tax code is incorrect, then when you complete your 2014 tax return, any overpaid tax will be repaid to you. You really ought to check your tax codes as they are issued to you as they determine how much you are paid net of tax each month. If there is something in a tax code you don't understand, call the tax office on the number here and ask them to explain it. Anything in the tax code that should not be there can then be taken out at that time and a new code issued. A tax code can be wrong yet most people in my experience assume they are always correct which isn't the case.

As your final payroll for the 2013/14 tax year appears to have been run, it is too late to have the 2013/14 tax code changed but you should call the tax office and ask them tio explain how your 2014/15 tax code is made up and if there is anything in that should not be, have it amended. The tax office is only as good as the information it is provided with so it is a good idea to check these things out before too long has passed and a tax uderpayment has accrued.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.


Thanks for the steer. I will definitely call the Tax Office, as I have had 3 tax code notices in 2013 alone, although my only source of income is via PAYE (and Child benefit). The code issued on 10th Feb was 769T & said ('we estimate you will earn over 100k'), then on 23/4 it dropped to 191T ad then on 16/6 to K86 - I did have an incorrect code for year ending 2011 as I had earned over 100k & not informed them (I didn't know I was going to earn +100k, and I didn't know I needed to inform them anyway!) - so I owed over £2,000 in unpaid tax, which I duly paid. Year ending 2012 I received a refund of £700 and then year ending 2013 I owed £1,000 just for child ben. What I don't understand is why my code keeps fluctuating when I have informed them that I expect to earn over 100k for the last 2 tax years, and have paid all owed tax aside from the £1,000 mentioned, which they are collecting through my 2014-2015 code apparently.


 


My base salary was £75k (increased to £80k w/e 1st March 2014), and my bonuses paid in March 2013 and March 2014 were approx £37k for both years. My income is fairly static, but clearly something is awry for the code to fluctuate so wildly - my Payslip today shows salary of £80k, credit of £37k bonus, less a savings plan of £250 & NI, I cleared £23,800 - which means my £37k bonus nets to about £20k after tax - much less than I thought. Do you think I have been taxed too much for this?

Expert:  TonyTax replied 2 years ago.

Before I could tell you why the codes kept changing I would need to know what is in each tax code. There is always a time lag between the receipt of new informationy HMRC and them use of it so it is best to take the initiative and call them if you think your code needs looking at.

If the K86 code is wrong, ie the deductions in it are excessive,then you may have paid too much tax for 2013/14. You should get your 2014 tax return completed as soon as possible after 5 April to have the discrepancies ironed out. If you put your gross pay to date from your March payslip into the calculator here, it will give you a rough guide as to how much tax you should have paid for 2013/14 but it won't take account of the child benefit charge or of any tax underpaid from an earlier year which has been collected in 2013/14. Leave the tax code box blank. There may be a deduction for the child benefit tax charge in your 2013/14 tax code in any event.

 

There is information on the child benefit tax charge here.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15758
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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