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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a UK taxpayer, in FTE - not self employed. My tax code

Customer Question

I am a UK taxpayer, in FTE - not self employed. My tax code for 2 years running shows my personal allowance and a figure of £20k for job expenses, - this is my typical annual spend on travel etc. What impact does this have on my tax due? I show a 0 personal allowance because I will earn >£118k.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Do you complete a self-assessment tax return? Are the £20,000 expenses reimbursed to you by your employer? Do you receive a P11D after the end of the tax year? What is your current tax code?

Customer: replied 1 year ago.
SA using TaxCalc software and data straight from payslips. Sole source of income is via my employment. Yes, expenses are wholly business related and reimbursed in full. Yes, P11D received. Current tax code 2006TM1, started a new job in September 2015.
Expert:  TonyTax replied 1 year ago.

Thanks.

Leave this with me while I draft my answer.

Expert:  TonyTax replied 1 year ago.

If the expenses were not reimbursed to you by your employer, your taxable income would be lower to effect tax relief for those expenses and you would retain more of your personal allowance. However, nobody is gong to work for an employer who won't reimburse legitimate business expenses, especially if they are as high as £20,000 per annum since the maximum tax relief that can be obtained is 45%. That would leave you paying the other 55% personally.

Your tax code should include a contra entry to the business expenses as they are reimbursed to you so that in effect you are not out of pocket. If there isn't a contra entry in your tax code, you will almost certainly be underpaid at the end of any one tax year as you will be claiming tax relief for something that ultimately you didn't pay yourself.

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.
Thanks - so if I personally accrued £20k of expenses for work, and my tax code shows £20k allowed, then that's fine? No penalty to me personally?
Expert:  TonyTax replied 1 year ago.

Yes and no.

If your tax code is 2000, for example, and you have no personal allowance you are getting tax relief of £8,000 on £20,000 of expenses which would be fine if you were not reimbursed those expenses by your employer. As you are reimbursed, the pay out of those expenses by you and the reimbursement to you effectively net one another off so when you complete your tax return at the end of the tax year, you will be underpaid by £8,000. You appear to be on a Month 1 code right now as well (M1).

You need to know what makes up your tax code. If you don't have it to hand, call HMRC on the number here and ask them to tell you what is in your tax code in terms of allowances and deductions. Also, ask if the code can be changed from a Month 1 code to a cumulative code. I will be happy to assess the position further if you can let me have the code detail.

Customer: replied 1 year ago.
Coding notice for 6/4/15 to 5/4/16 shows 2790T, £7840 personal allowance for that year and £20065 Job Expenses. That's all the detail shown.I left that employment in September 2015, they paid me until December 2016 as part of my package. New role started in November 2015, and they are using the M1 code.
Expert:  TonyTax replied 1 year ago.

If there is no contra entry for the job expenses in your tax code, then when you complete your tax return you will be underpaid. Would you let me have your P60 figures for 2015/16 so I can calculate your tax position?

Customer: replied 1 year ago.
Let me look this out, thanks. I thought I had it to hand, sorry.
Expert:  TonyTax replied 1 year ago.

OK.

Customer: replied 1 year ago.
Sorry, I can't see this - I have requested it again from my previous employer. I do have the P45 dated 31/1/16 showing Tax Code at leaving of 2790T, total pay to date of £117330.74 and Tax to date of £32,331.70 with Month 10 as my leaving date. Is that any use at all?
Expert:  TonyTax replied 1 year ago.

If I use those figures as your total pay and tax for the year, you will be underpaid by £7,469. Your personal alloowance is too high and there is no contra entry for reimbursed expenses. Your current employer should have the tax year end totals which will include the figures you just gave me.

Customer: replied 1 year ago.
Hi - P60 for YE 5/5/15 shoiws 104842.26 paid, 27536.20 taxed. Final tax code 2006T. Need the info from the boxes on NI contributions too?
Expert:  TonyTax replied 1 year ago.

The year end gross pay figure on the P45 is lower than the previous job figure as is the tax figure. The new figures show you underpaid by £4772.

Customer: replied 1 year ago.
Thanks. To be clear, the P60 figure of 104842 is for year ending 5 april 2015, the P45 is YE 2016. Not sure I have a P60 for 2016 from my old employer, would they have issued one after my P45?
Expert:  TonyTax replied 1 year ago.

You should get a P60 from your current employer. The last payslip before 6 April 2016 will have the tax year end figures for 2015/16.

For 2014/15, assuming you made no pension contributions other than through your payslip, your tax should have been £34,932.20. You paid £27536.20 so you would appear to be underpaid by £7,396.00.

Customer: replied 1 year ago.
I haven't received a P60 from my new employer yet and don't see one on our system. March16 payslip shows a variety of figures, Tax YTD and This Employment show 65545.92 , same amount taxable, 19749.80 tax paid.
Gross Pay has PEN 1 EE of £638.40 against it, Tax has PEN 1 ER of £1596 against it.
Expert:  TonyTax replied 1 year ago.

You have a P45 dated 31/1/16 with gross pay of £117,330 and tax of £32,331.70. This conflicts with the figures of £65,545.92 and £19,749.80. Is the £65,545.92 just from your new job, ie in addition to the £117,330 from your old job?

What do the PEN 1 EE and PEN 1ER figures represent?

Customer: replied 1 year ago.
that is correct. £117k from #1, and the £65k from the new role.
Customer: replied 1 year ago.
Sorry, re the PEN figures. Not sure what those represent, I'll attach a payslip showing these which will hopefully help. This appears on some though not all payslips from the new role.
Expert:  TonyTax replied 1 year ago.

Thanks.

Expert:  TonyTax replied 1 year ago.

Are you saying that you earned £117,330 to December 2015 in your old job and £65,545 from November 2015 to the end of March 2016 in your new job? If so, your total earnings in 2015/16 were £182,875. Tax on that would be £68,436.75 and you had £52,081.50 deducted at source so the underpayment is around £16,355.75. The reference to PEN 1 EE is employee pension contribution and the reference to PEN 1 ER is employer pension contribution.

Customer: replied 1 year ago.
Thanks. The £117k figure is form my #1 job P45, so will show all pay in that TY until January when I left. The £65k is for the new job that paid me from November 15 onwards, with some accelerators and bonuses in there - so yes, the two figures combined show £182k when totalled. Now, if all my income ( from either role ) is taxed at source, using the tax code provided, where does an underpayment come in / how is it calculated?
Expert:  TonyTax replied 1 year ago.

Total Income £182,875. No personal allowance. Tax on £31,785 @ 20% (£6,357.00), on 118,215 @ 40% (£47,286.00) and on £32,875 @ 45% (14,793.75). Total tax due £68,436.75. Tax deducted at source £52,081.50. Tax underpayment £16,355.75. Pension contributions may affect the bot***** *****ne if tax relief wasn't given at source.

As I said earlier, your tax was wrong, hence the underpayment.

Customer: replied 1 year ago.
Thanks for clarifying this - possibly the daftest question ever, but how is the tax wrong? If it's all calculated by tax code, surely this would be picked up on? What causes the tax to be undercalculated like that, and what are my options for now / going ahead and making sure it's right?
Expert:  TonyTax replied 1 year ago.

You had allowances you weren't entitled to namely the personal allowance and the expenses allowance, hence the underpayment.

Call the tax office and have your current tax code reviewed and changed if necessary based on your current salary. As expenses are reimbursed, they should either be excluded from the tax code or cancelled out by a contra entry. It should probably be OT.

Customer: replied 1 year ago.
That certainly helps me understand this better, thanks. I'd have thought that the personal allowance would have flagged in their system, and is it normal for expenses to be treated as an allowance so built into your next years tax code? By their very nature they would change somewhat, surely? Is it then my duty to inform them if the amount accrued via expenses changes?
Customer: replied 1 year ago.
can tax codes be retro-adjusted or is it only on future earnings?
Expert:  TonyTax replied 1 year ago.

We are only in the second month of the tax year so if you had the code amended to a cumulative code, it would effectively take some extra tax for April 2016 in the May payroll run if that hasn't been done already. Alternatively, the underpayment for April 2016 and possibly May 2016 can be left until the end of the year and paid through your self-assessment by HMRC issuing a Month 1 code which ignores what has gone before in the current tax year.

Customer: replied 1 year ago.
Thanks, ***** ***** think both those options over and take it form there. Superb help so far, thanks.
Expert:  TonyTax replied 1 year ago.

OK.

Expert:  TonyTax replied 1 year ago.

Hi.

I'm just following up to find out if my answer helped or if you have any further questions.

Customer: replied 1 year ago.
Apologies, a death in the family meant I had to take care of personal matters.Thanks for your advice and clarification. As I am about to prepare my most recent return, my former employer, a US based company with a registered UK entity to handle payroll etc, have reneged on their promise to pay me expenses totalling around £11,000. They have closed down the UK entity completely and now say that the US has no responsibility to issue these expenses, despite them confirming they would. Since I have no way of trying to take them to court, how might I allow for these in my tax return? Obviously I have details of all expenses etc.
Expert:  TonyTax replied 1 year ago.

What type of expenses are you referring to?

Customer: replied 1 year ago.
Apologies for not being clear. These are all travel-related expenses. Typically these ran around £20k annually, mostly European travel for work, subsistence etc. The company had a dispensation form from HMRC which I believe was used in place of P11D's, if I recall. In the last 6 months I worked for this company, they had scaled down from 34 employees to just 6, and I'd taken a bigger amount of travel on to cover the shortfall of staff. I had been assured these would all be paid in 1 lumpsum, but cashflow difficulties meant they couldn't make monthly payments. Since I was being paid my salary every month as expected, and had worked for them for 6.5 years, I had no reason to doubt this was a blip and would be honured - but sadly it seems not.
Expert:  TonyTax replied 1 year ago.

If I were you. I'd claim them through the employment pages of your tax return and point out in the white space that they should have been reimbursed to you by your employer but were not. HMRC may ask questions so keep the expense details.

Customer: replied 1 year ago.
list these in Box EMP17, Bus Travel and Subsistence? Put the whole amount as these are suitable for tax relief, and use the white space at the end of the form to highlight this? So if the figure is £11k, put £11k there?
Expert:  TonyTax replied 1 year ago.

If the expenses are T&S , then yes, box 17 is the one to use.