AIBU to be upset my PAYE tax was so (11k) wrong?

[Janome9300]

I have just (very early and efficiently) done my tax return.

Although 100% of my income is from a single employer and I am fully PAYE I owe an additional 11k for 23/24. In addition they are demanding a 5k payment on account for next year so I need to come up with 17k by 31 Jan next year.

I have been through all my payslips and done the maths manually and they are correct about the additional owing. I need to put away 1.7k a month between now and the payment date.

I am so sad. I have had money owing before but it is normally a couple of thousand, this has been a real shock. Thank god I did the calculation so early so I have a hope of scraping it together. I don't understand why it has been so wrong at source. I haven't had a massive pay increase or anything.

So you under paid almost £1k a month tax? Who calculates your wages??

Are you sure they’re “demanding” payment on account? I had that once and it was literally just a suggestion, and you don’t have to do it.

How did you not notice that you were paying the wrong tax all year, given that you have expensive of having it be wrong in previous years?

Have you actually addressed what wrong (e.g. wrong tax code?) this time?

Did you not check the PAYE code notice you'll have been sent when the tax code changed?

The usual reason for a large underpayment like that would be going over the £100k income threshold and losing some or all of your personal tax free allowance.

I'd suggest you use your personal tax account regularly to check the PAYE code breakdown and to keep HMRC informed with changes in your level of pay etc so they can amend your tax code when your circumstances change.

If, I think, 80% of your tax is collected at source from wages, I don't think payments on account are due. And even if that doesn't apply, you can use your tax return to elect to reduce/zeroise the payments on account if your tax code is now right and you won't have a tax underpayment for the new tax year.

How?

if you are “fully PAYE” then all your tax should have been taken at source. How have you underpaid by 11k?

was your tax code out? Has HR or payroll fucked up? Can you go to them and see if they can sort a monthly overpayment?

I’m sure if you owe tax on PAYE they adjust your tax code the following year to recoup, they don’t demand upfront payment.

what on earth has gone wrong? Didn’t you check your payslips and notice your tax was suspiciously low?

Why were you doing a tax return if you’re PAYE and only have one employer?

I'm baffled, do you have other income apart from a role that pays you as PAYE? I can't imagine not noticing my work hadn't taken enough tax.

Are you employed as a freelancer by one employer?

If you earn over a certain amount (think it might be £125k) you have to do a self-assessment even if you have a single employer and pay through PAYE.

Tax may have been undercharged if the base salary was e.g. £90k but then there was a £35k bonus - the tax code doesn't change (unless you go online and change your income details yourself mid-year) but at the end of the year reckoning, HMRC make the necessary adjustments and send you the bill.

My guess is that your pay went well over 100k and you now owe tax back as you’ve lost your personal allowance? But that would have to be an awful lot over to owe 11k as you would have been paying 40% tax anyway? Or did you also receive share payments too? That could have caused the issue as they may not have been taxed correctly

(we always put expected monthly salary into an online calculator to check that the monthly pay looks roughly correct. And try to avoid the 100-125k 60% equiv tax rate by paying into company pension via salary sacrifice)

Also I’m guessing you’ve already received your p60 so you are using completely accurate information?

Hi OP. You may find that if you file SA early the overpayments can be taken out of via this years tax code. You might end up on a K code, where you get slammed for loads of claw back tax , but not all of it (I had that once).

You can also arrange for a repayment plan over a few years too. Worth ringing them to discuss it.

As others have said it's worth checking onto the portal every now and then especially if your income fluctuates.

I meant underpayments, of course

The good news? To owe £11k that you never noticed you were bing overpaid means you probably earn a good salary to start with.

Going forward? you really need to keep track of your tax payments throughout the year. It's pretty easy to run up a quick excel table that you enter all your income in (salary, bonus, anything extra) and the tax/NI you have paid to date each month and that then tracks how this compares to what you should have paid.

Periodically (about 3 times a year) compare that against an online calculator to check you are on the right track.

HMRC should not be able to SURPISE! you then, because you will already know how what you have paid compares to what you should have paid.

If you earn £125k then yes you'd owe more tax but max is around 12500@40%

So around £4k? That's due to personal allowance withdrawal.

That is a huge amount to owe back. I'm going to guess that you are way of £125k and received a personal allowance in error, plus had some benefits in kind and other taxable income

I can only assume your salary is quite large so don't worry too much. Cut back for a year or over pay sooner if you can. Do you have anything you can sell on ebay?

(We fell into this trap one year after a surprise bonus and didn’t even know we had to do a tax return over 100k or about the loss of personal allowance. Big learning curve and tax bill)

This

To answer a few questions - no I didn't notice I was underpaying. I pay nearly 3k a month tax and it did not seem too low. I am indeed an employee with one employer earning a lot (140k taxable income in the relevant tax year).

I assume it is a tax code issue but I don't know why it was (so) wrong. I am ashamed to say I am not sure how I would work out what it should be. I know I don't have any personal allowance but this has been true for a couple of years.

The payment on account being optional would be good news so thank you for pointing that out. I am going to call tomorrow and see if I can argue that point.

You need to file a tax return if you earn over 100k, regardless of whether self employed or PAYE

Going forward? you really need to keep track of your tax payments throughout the year. It's pretty easy to run up a quick excel table that you enter all your income in (salary, bonus, anything extra) and the tax/NI you have paid to date each month and that then tracks how this compares to what you should have paid.

This is great advice thank you will do this for this year!

You don't need to "argue that point" re payments on account. It's entirely up to you to tick the box on the tax return to zeroise/reduce them. HMRC won't care and won't argue. If it turns out wrong, they'll just charge interest when the real figures are known next year.

I earn about the same and pay at least £50k in tax so 11k due sounds about right. I do a tax computation now each year (if you look at your tax statement from HMRC you can replicate the tax comp from what they have done in the current year without needing to be a trained accountant! ) to work out what I owe and whether my payments to date are on track

The other thing you must do is ensure on your personal tax account your annual expected earnings are correct otherwise they will under- bill. I've taken to slightly overestimating (part of my income is bonus so not fixed or guaranteed) so that if anything they owe me as there's nothing worse than a surprise tax bill.