I owe £880 to HMRC

[RosaMoline]

Sorry..I just find these things so confusing!
I received a letter from HMRC (it’s genuine) saying that they have calculated I would’ve underpaid tax by £880.00 this year
I recently got a pay rise at work and cashed in part of my pension, so I am guessing this is why.
They say they will take in the increase in instalments from April 2025 (not this year) and will change my tax code.
£880 divided by 12 months is about £73 quid..is this how they will take it..from my salary ??
Thank you! ☺️

Also, is it correct they will start to take this increase next year and not this one??

They will take it by adjusting your tax code. Think of it as a lower allowance before you start paying tax. If they say your tax code is changing from next year, that’ll be it.

It wouldn’t have been the pay rise as that would be taxed as you earned it.

What exactly do you mean by cashing in some pension? Are you under 55? It’s likely that. It’s very rarely a good idea.

Thank you..no, I’m over 55. Just needed to release some funds urgently needed. I’ll be coming into an inheritance soon, so can top up.

It'll be down to the pension.

If you take the 25% tax-free portion then nothing happens with HMRC. When you take more than the tax-free portion then the pension company will deduct tax at 20%. If you're a higher rate taxpayer, or the taxable amount takes you into the higher tax bracket, then HMRC will adjust your allowance to enable the difference in tax to be recovered.

Generally it's recovered in the following tax year.

It will be taken from your salary by adjusting your tax code down.

They have been known to assume that you'll be cashing in the same amount from your pension on a monthly basis and taxing you accordingly in anticipation, so best to keep an eye on it.

I was offered a payment plan….23 £ a month for 3 years ….I owed around the same amount….I’m nhs and the error happened when I changed jobs to a different trust….I was really annoyed at first….but just got used to paying the money

Do check that they are not assuming you will receive the additional pension money on an ongoing basis and adjusting your tax code accordingly. If you set up an online login it’s fairly easy to check and you can adjust yourself. Or call them. Once you actually get through they are very helpful.
I had one year where I got a lot of interest on savings (had a gap between sale and purchase of property) and they assumed this would be on going income and adjusted my tax code. One call and it was fixed.

Being a bit slow here (apologies). If the OP owes £880 then surely they won't just lower her tax threshold by 880÷12 = £73 a month? Won't it be 880 ÷ 20p and then divided by 12 months? Oh dear, think my brain's scrambled!

If op does owe £880 they will lower her tax threshold by £4400 which equates to paying an extra £880 per year at basic rate.

Argh! You were all absolutely right. They (HMR) put me on a K tax code, because they assumed that my one off pension withdrawal was a regular addition monthly income, so this month I’ve paid a whopping £800 extra in tax 😩
I called them this evening, took me ages to get through, but they’ve put it back my regular code (L?) anyway, the one I had before.
They said the overpayment would be credited onto my next months pay end June, I don’t need to let my employer know, it all happen automatically. The £880 it said I owed for next tax year is no longer applicable too.
I suffer massively from anxiety, so can someone reassure me I’ve understood all the facts correctly please? It’s a shame I have to wait until next payday, but I can sort of get by until then.
Thank you xx

They is HMRC of course

Does it also sound right I’ll automatically get this overpayment back in next months salary? Surely HMRC send it to me directly???

No, it will be adjusted through payroll. That's normal.

Yes it will all get credited back and if HMRC have said in your next payroll then it should happen as promised.

They'd credit you with it if you pleaded hardship

You can send in an updated estimate for your income via your HMRC account.

I had to do this earlier this week as they had calculated I would be earning around £12k a month this year. I'm not, unfortuneately. They stuck me on a K tax code too.

I submitted the new calculation yesterday and my new tax code was on the site this morning. Too late for this pay roll but it will all come out in the wash over the next couple.

If you do end up paying too much over the year they will refund it back, but that takes them ages.

Current year should sort out over your coming pay packets, and this will probably be quicker than asking for a refund directly.

I overpaid by a good amount last year and submitted a refund request earlier this month. They are estimating they will deal with it by the 26th June.

I’ve been told by HMRC that this £800 overpayment will automatically be credited on June 25 payday.
Why can’t they credit it back to me sooner? It’s a huge amount.

It’s because it will be paid back via your employers PAYE system. You could ask your employer for an advance of salary.