Anyone with a tax code change to K? Help me understand...totally confused

[Eastie77Returns]

Posting here rather than Money Matters for traffic.

I engaged a Tax Accountant to submit my Self Assessment for the last tax year which he completed a couple of weeks ago. After preparing everything he informed me I have a tax liability of £3.3k as my payroll dept had underestimated my income with HMRC. I receive a base pay + monthly bonuses which flucuates quite a bit so my take home pay varies every single month. I also receved an unexpected pay rise in September.

I now understand I should have proactively contacted HMRC and told them my income would be higher than initially reported by payroll. Live and learn etc.

As a result of all this, HMRC has informed me my tax code has changed to one beginning with K and they are going to start collecting the £3.3k immediately. Their messgae reads "To do this we have reduced your tax-free amount by £25,229. This means that you will pay more tax until 5 April 2025, so that we can collect the £3,359.30 owed"

My confusion lies in the fact the tax accountant told me I will have to pay the entire £3.5k in full by January 31st whereas the above indicates it will be deducted at source between now and next April. When I told him about this he just continued to insist I have to pay it all at once..

There is also an option on the HMRC site to pay the liability over the next tax year instead. Has anyone done this? This seems a more reasonable option to me. According to the HMRC site, this option allows me to pay an extra £279.94 in tax every month between April 2025 and April 2026. When I mentioned this to the tax accountant he seemed inexplicably annoyed and said smeone on my salary should just pay it off at once. Which I would love to do but I don't have a spare £3k just laying around!

I would hazard a guess that since your tax return was for April 2023-March 2024, the amount payable in full in January is for that tax year and the letter you have had from HMRC changing your code to a K is for this current tax year.

The system often reviews in October/November time whether you are likely to have earned over the estimated earnings figure given to them in March. If they think you will be earning more and therefore due to pay more tax it corrects over the remaining period of the tax year.

It’s happened to us before, also if the amount owing at tax return is over £3500 it’s not payable by PAYE in the next tax year, it must be paid in full by Jan 31st.

But the message from HMRC states they are going to take payment for the £3.4k between now and April 2025: "...This means that you will pay more tax until 5 April 2025, so that we can collect the £3,359.30 owed"

So if they are taking the £3,359 via more tax until 5 April 2025, what is this other amount that I have to pay in full by the end of January..?

The £3359 that HMRC are collecting via your PAYE code is tax owed on your salary from April 24 to now

They usually only take payments in year for anything due that tax year because the system has highlighted that you’ve underpaid in the first half of the year so I would wonder if you owe £3.3k for the tax year 23-24 which is the amount due in January (or split across PAYE in the next tax year) and that the letter saying payments will be increased between now and April 25 is for an underpayment calculated for this current tax year.

Meaning you would essentially owe them £6k. Does the letter they have sent you state which tax year it relates to?

It could also be that the accountant has made a mistake. He’s absolutely wrong that it must be paid by January - I’m sure the threshold for PAYE is £3.5k. You don’t pay him to judge how much money you should have lying around!

Really you need to speak with HMRC to clarify. They might be open in the morning.

Yep, understood. So if HMRC is collecting this via my PAYE code, why is my tax accountant telling me I have to pay my tax liability by January 31st?

I'm not sure if he means that on top of the £3359, there is another payment I have to make. I can't get a straight answer from him apart from "you have to make payment by January 31st".

That’s what I would assume from what you’ve said.

You owe two lots of payments - one relating to the tax year 23-24 and one for underpaying between April this year and now.

I’ve just read my last post back and my lack of punctuation made it hard to understand. Essentially I was trying to explain what I’ve said above.

Yes, I will call them first thing as it's all very unclear.

The tax accountant has given me confusing and contradictory information for months now and I'll not be working with him again.

There is no letter, the notification is in my Gateway / HMRC account and just reads:

We estimate that you have not paid enough Income Tax so far this tax year. You currently owe
£3,359.30
How this will be collected
We will start to collect this amount straight away.
To do this we have reduced your tax-free amount by £25,229. This means that you will pay more tax until 5 April 2025, so that we can collect the £3,359.30 owed.
Your tax code has been adjusted for this.

I had a letter today. It said if I owe under £3000 then it needs paid by Jan 31st and if it's over I can spread it until end of March 25.

In that case I think it’s definitely two payments owing. They don’t send notifications changing your current tax code for anything to do with a tax return.

Just checked with my husband and he said when you do a tax return it tells you what you owe and at the end asks if you want to make the payment in full by January 31st or if you want to request splitting it across next tax years PAYE. I would suspect your accountant has clicked the pay in full box hence why he’s being so insistent.

Make sure in March you go on the app and set a realistic estimated earnings otherwise this will happen again next year. Especially if you earn over £100k, it’s the loss of personal allowance that causes these problems.

I’ve checked online and there is an option to pay this £3,359.30 over the next tax year. So that would make sense re. the rule that if it’s over £3k then payments can be spread out.

I haven’t received a letter about any of this though. Just notifications in my online Gateway account and HMRC app.

I’m hoping I can get through to someone at HMRC on the phone who can shed light on the total amount I actually owe since there is apparently a totally separate tax liability that is due by Jan 31st..

I currently earn in the £100k - £150k range but it’s difficult to predict total earnings for the year. My payslips for the last year show different amounts every single month as bonuses/commission vary widely throughout the year.

I think the tax system is very poorly set up for those who earn bonuses. My husband had an issue once getting them to understand that a significant bonus was just that and not a 10 fold pay increase that would be replicated each month. It took several conversations and phone calls to rectify so I hope you get some answers quickly!

Also hopefully the fact that you have the option of paying it back over the next tax year means it may just be the one payment from tax return and perhaps the tax office have made an error in trying to change this years tax code instead.

Good luck!

You willow the tax because you earned over £100k and i suspect you were given a tax free amount in the year when it should have been zero

If you logon to your Government Gateway account and go to tax years. If you select 5 April 2024, this will show you the tax owed for the year. If this is over £3k it cannot be collected through the tax code so will be owed at the end of January

When your tax return was submitted it probably triggered HMRC to look at the current year and n realise you were in the same situation again, and they have adjusted your tax code to accommodate this

When you complete your tax return to 5 April 2025 it will confirm the amount owed

I would find an accountant that works a way that is useful to you

You can’t pay high amounts back via tax code

www.gov.uk/pay-self-assessment-tax-bill/through-your-tax-code

What tax code have you been on? Based on the above I’d guess 1257L or similar with bonuses making you lose your personal allowance?

If so, tax code is for this year to prevent another big bill.

What are you likely to earn this year? If it’s on the cusp then could be worth putting some of your bonus into your pension - if it’s salary sacrifice - especially if you want to use tax free childcare or “free” hours

The tax payable by 31 Jan 2025 is the tax you owe for the 2023/4 tax year. The tax being collected via your k code is for the 2024/25 tax year

Ex HMRC, a K code means that every payday they add an amount on to your pay so that they collect the tax owed. Often people on State Pension are on K codes because their state pension is deducted from their tax allowance before a code is issued.

Example

Tax free allowances £12570
State Pension £13885
Deficit -£1315

Your tax code would be K131 which means an additional £1315 would be added to your income so they can collect the additional tax over the tax year from other income like occupational pensions.

It's exactly this. Normally under PAYE the tax due for the year is collected during that same year (Pay As You Earn). This works well if your income is regular but if it's not, and the tax office doesn't know, it will lead to under or over payments. Small underpayments can be collected in the following year by adjusting that year's tax code, which would allow you to spread the payment until April. But anything over 3000 has to be paid by the end of January.

You need to identity the 23/24 liability from your tax return. Then look at how much was collected via PAYE in 23/24. The balance will be due by 31 January.

The adjustment to your tax code for 24/25 is an attempt to collect the tax due for 24/25 by April 25. If you're still getting bonuses every month it won't be possible for the tax office to get it completely right, but unless you're expecting wild fluctuations between now and April they should be able to get close. Any under or overpayment that transpires for 24/25 will be dealt with when you submit your return for 24/25. They can't do it sooner because they won't know about it till then. Hopefully the adjustment being made now will mean that any underpayment for 24/25 will be less than 3000, so you will be able to have it collected via PAYE. How this impacts your tax code for 25/26 will depend on how many months there are left before April at that point. It's to you advantage to get your return in early so they can collect it over more months.

This isn't really any different to what others have already said, but sometimes it helps to have a bit more detail.

Ok thank you, that is very clear.

I have checked online and spoken with HMRC this morning.

The 23/24 liability from my tax return is £3,041. This is the amount I have to pay in full by January 31st so that confusion is cleared up now. That amount is coincidentally almost all of the bonus I received this month. C'est la vie.

They confirmed I also haven't paid enough income tax this year and currently owe £3,359.30 but I can start repaying that via PAYE from April 2025 so I will pay increased tax every month between 5 April 2025 - 6 April 2026.

My estimated taxable income has been updated and my personal allowance is 0.

I'm going to try and estimate what my earnings will realistically be for the next tax year but it's tricky as my bonuses do fluctuate (they are not based on my team's performance but the performance of an entirely seperate Sales team who may have a brilliant quarter followed by a poor one and we have zero control/insight over that).

I think I may as well just put my bonuses aside and be prepared to use some of it to pay unpaid tax each year. Apparently there is a kind of dynamic system my company's payroll team could use so that they update employee's estimated taxable income each month but they don't do this.

I agree with a PP that the current system doesn't seem to be set up very well for people who receive bonuses etc.

Thank you to everyone for your help.