Tax query

[barbismyfriend]

Firstly, I know I need to speak to the tax office but I thought someone might be able to explain in words of 1 syllable first!

I work part time, PAYE.
I claim a small private pension

I have just received a tax letter.

They reckon I will owe £225 this year. My tax code has gone down to 850L from 12570L

My question is if they think I will owe them £225 this year why have they reduced my allowance by £4k???

Am I missing something really obvious?

Its because you don't pay 100% tax, so the amount they have reduced your personal allowance by the amount of your earnings they will need to tax at your tax rate to repay the 225 over the rest of this tax year.

Thanks for replying.

Still don't really understand, so because I pay 20% tax and owe £225 they times that by 5 then take that off the tax code? But that doesn't work either!

Sorry, I still don't get it! I wish I'd could just pay the money and be done with it!

I don't agree with the previous explanation. That reduction would cause more like £800 of tax to be paid.

Just checking OP, you're not expecting to receive your state pension during this tax year?

Or do you have a large amount of savings that might have tax due on the interest earned?

Paying the tax in a lump sum might be an option if you register for self assessment and report your income that way - it will probably be quite simple to do for your circumstances.

The new tax code will collect the overpayment and the tax due on your pension income. The adjustment should work out just short of 70 a month more in tax I think, from quick math assuming 20% bracket. So around 22 of that will be the repayment of what's underpaid and the remaining 40 something the tax that's due on your pension income each month.

Have you looked online at your tax account, it might be easier to see what is going on with previous years tax, if you haven't set up for online it's quite easy and useful to see more what is happening.