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bigduckontax, Accountant
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Today I received my tax coding for 2015/16 which I

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Today I received my tax coding for 2015/16 which I do not understand my tax reference xxxxxxxxx xxxxxxxxxxx. Mrxxxxxxxxxxxxx xxxxxxx My Tax coding is given as 130 Y This is shown as Personal Allowance £10660 other earnings or pension xx  State pension or benefits xxxxxxxx xxxxxxxTax free Amount of £1302 This tax Coding has been sent to Friends life with who I have a small annuity of £79 per year and to who they have given my tax free £1302 With this letter today I have received another tax ref  xxxxxxxxxxx Same National Ins xxxxx xxxxxxx which has been sent to my other pension provider Legal and General my pension from them being £1203 yearly. They now Quote a tax code fo This as 3T with a tax free limit 0f £32 so it appears as though I have lost £1200 of my tax free allowance Thank You xxxxxxxxxx

Hello David, I'm Keith and happy to help you with your question.
From the tenor of your letter I feel that you may think we are HMRC when actually Just Answer is an independent tax advice site. However, I will try to put you in the picture.
As you probably are aware the purpose of tax codes is to create a situation where you will be tax neutral at the end of each tax year. Unfortunately the State Pension throws a spanner in the works for, although it is taxable, it is paid gross. HMRC account for this by reducing your code number to collect the unpaid tax by effectively over taxing other sources on income. This is all very well if they get it right, but over the last 20 years HMRC have got mine wrong nearly every time, the current year being the first where they got it correct, well nearly.
Now you know how it works [ha,ha] you have to sit down with the proverbial wet towel round your head to see what various tax offices have actually done; checking tax codes on each and issue, is essential as if they are incorrect your tax affairs will be wrong also.
Your coding giving you 1.3K of free pay from your pension provider, Friends Life, with respect, will be a fat lot of use as the total annual income therefrom is a mere 79 quid a year leaving some 1.22K adrift. This should have been applied to your L & G policy, but, on the face of it has not. You should draw the attention of the tax office which issued this incorrect code to what should have been done. Please remember that the tax office which issued a coding to L & G will inevitably differ from your own parent tax office to add to the confusion. I regret it is, as always, a case of check, check and double check, check and check again when you are in the situation in which you currently find yourself.
Of course it will all come out in the wash at the end of the tax year, particularly if you make annual self assessment tax returns. However, tax offices often correct last years under or over payments (up to 3K) by means of adjusted tax codes [scream!].
I do hope I have shed some light on a situation which appears complicated, but actually is relatively simple, providing you continually check codes on every issue and ensure their accuracy. It's a pain in the butt I do appreciate, but unfortunately necessary.
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