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changed tax code - tax return

I am trying to submit a tax return online ( throught HMRC website). The tax code for 2011/12 was changed from 747L to 805L. Where shall I put it on that return so the personal allowance is increased and reflected in the calculation? Thank you

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10th Jun 2012 17:59

Not relevant

I am not familiar with the HMRC online tax return facility, but the PAYE code does not affect the calculation of the tax liability.  It only affects the amount of tax deducted from the relevant salary under PAYE.  If the code was changed, there might be a tax refund because the actual tax liability proves to be lower than the tax deducted under PAYE.

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10th Jun 2012 18:09

The only income I need to declare is an employemnt income, however I have to deduct employment expenses. The correct amount of tax was deducted from the employment income ( for the 805L tax code) but when I declare the expenses it is all worked out for £7475 personal allowance:(

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10th Jun 2012 19:25

Confused

Firstly, although HMRC can issue any tax codes they think appropriate the usual tax codes are:

2011-2012 747L

2012-2013 810L

What year are you talking about for the 805L tax code?

Tax codes don't matter when you submit a tax return.

You should calculate the income, calculate the tax payable on that income and deduct the tax paid. This will leave the tax payable or the tax refundable.

The normal personal allowance is £7,475 for 2011-2012.

What is the problem?

 

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10th Jun 2012 20:21

I might be doing something wrong, please correct me if my thinking is not right.

Tax return for the year 2011/12. Tax code to use 805L, personal allowance £8055 ( as per letter from HMRC).

Employment income £23113, tax decucted £3011 ( details per P60)

Employment expenses that I need to put on tax return £4018.

 

Per HMRC calculation ( as it uses personal allowance £7475) tax overpaid £687. I think it shall be £803. Am I silly? If not the question is where can I adjust the tax code?

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Tax relief on business expenses in previous year?

@Yvonnel_b

On the notice of tax coding received why was the adjustment made to increase the personal 'allowance'? Was it because of tax relief claimed in previous years on business expenses - the usual one being business mileage reimbursed below the HMRC approved rates?

If this is the case then the tax rebate due per the tax return should be correct as tax relief has already been received on part of the business expenses (£803 - £687). 

Tax relief on difference  (£8,055 - £7,475 x 20%) = £116

Difference in tax overpaid per your tax calculation £803 - £687 = £116.

I'm guessing that the notice of tax coding has a £580 adjustment for business expenses?

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10th Jun 2012 20:44

Tax overpaid of £687 sounds

Tax overpaid of £687 sounds right to me.

Your employment income less allowable employment expenses gives you £23,113 - £4,018 = £19,095.  Deducting the standard personal allowance of £7475 gives you a taxable income of £11,620. 

At basic rate tax of 20%, the tax to pay is £2,324.  You have paid £3,011, an overpayment of £687 (as per the HMRC calculation).

Your personal allowance does not change from £7,475, but the tax code has probably been adjusted to try to take into account some of the employment expenses - so that you pay the correct tax over the course of the year rather than overpaying and needing to claim a refund at the year end.

The reason that you still have an overpayment at the year end, even though your tax code was adjusted during the year, could be that the new tax code was based on an estimate of the expenses (possibly last year's, from your P11D) and that your actual expenses are a little higher than the estimate, so you are owed a refund of some of the excess tax you have paid.

As others have said, the tax code does not go on the online tax return as it is irrelevant.  The £7,475 personal allowance is the standard amount, but you get a greater tax free amount through adjusting your tax code.  This is taken into account by entering the employment expenses into your tax return - you don't need to put in the tax code as well.

It's difficult to say exactly how the tax code was calculated without sight of the letter, but there should be a table explaining how the £8,055 tax free amount was calculated.

Hope this helps!

 

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10th Jun 2012 20:45

There was an adjustment made by HMRC as last year ( 2010/11) there were some employment expenses claimed on P87 form and instead of refunding the tax overpaid HMRC adjusted the tax code for 2011/12.

Kent - you are right - I am short by £116 as I do not know where to put that new personal allowance. HMRC online tool assumes it is £7475. I think I need to give them a call...

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10th Jun 2012 20:57

Personal allowance

The personal allowance is £7,475.

There isn't a NEW personal allowance.

If HMRC want you to pay tax from 2010-2011 then there's a box for underpaid tax.

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10th Jun 2012 21:12

I am sorry Peter - I do not agree. There is no underpayment.

The 2010/11 tax was overpaid and as a result 2011/12 personal allowance was increased.

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10th Jun 2012 22:02

Mistake

Yvonnel_b wrote:

I am sorry Peter - I do not agree. There is no underpayment.

The 2010/11 tax was overpaid and as a result 2011/12 personal allowance was increased.

Sorry, from what you say I should have said OVERPAYMENT. I didn't think HMRC increase tax codes because of overpayments. I thought they would refund you the tax. Are you sure the tax code change is not to estimate the expenses for 2011-2012.

Whatever the situation is - HMRC don't increase a personal allowance because of anything you have said. They would change the tax code.

A tax code isn't the same thing as a personal allowance.

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Only one personal allowance

Hmmm, think we're going around in circles.

There is only one personal allowance, in this case £7,475.

Your tax code has been adjusted to increase your tax free entitlement to take account of business expenses which you're entitled to claim tax relief on.

It looks like you claimed tax relief on business expenses of £580 in the 2010/11 tax year.

Therefore HMRC have included this in your tax code for 2011/12. So if you had £580 of business expenses to claim in 2011/12 you would not receive a tax refund of £116 as you had already received an additional tax free allowance - included in your tax code (£7,475 + £580 = £8,055).

As it happens you are claiming £4,018 of business expenses, you have to deduct the £580 'allowance' you have already received before calculating the tax refund you are due.

So £4,018 - £580 x 20% = £687.

That's my reading of it anyway.

 

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10th Jun 2012 22:05

Although I think what the OP is saying is that the tax code was adjusted to take into account the 2010-11 business expenses which had resulted in an overpayment of tax.  As Peter rightly points out, there is a box on the tax return for UNDERPAID tax, but it is unusual for HMRC to repay overpaid tax relating to a previous year through the next year's tax code, and a similar box for OVERPAID tax is not apparent on the online return (there is one, but it is for use by writers etc using averaging rules). 

So I would say it is worth checking with HMRC that the adjustment to the 2011-12 tax code does indeed relate to 2010-11 overpaid tax on expenses, rather than (as we have all been assuming) the expected employment expenses which arise in the 2011-12 tax year. And if it does relate to overpaid tax from a previous year, HMRC should be able to advise how a repayment of this amount can be obtained.

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10th Jun 2012 22:04

Scenario 1:

Tax return 2011/12. Tax code 805L, there are not expenses to claim.

Employment income £23113, tax decucted £3011 - That's correct - right?

 

Scenario 2:

Tax return 2011/12. Tax code 747L. Current year expenses to claim £4018.

£23113 - £7475 - £4018= £11620 - tax to pay £2324

 

If I put these two together and get scenario 3:

Tax return 2011/12, tax code 805L, Current year expenses to claim £4018

£23113 - £8055 - £4018 = £11040, tax to pay £2208

Why is that wrong?

 

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10th Jun 2012 22:17

Scenario 1 - no, because if there were no employment expenses, tax would have been underpaid.  Tax should have been £23,113 - £7475 personal allowance = 15638 taxable income x 20% = £3,128.  Underpayment of tax of £117 due to incorrect tax code used (805L should only have been used if there actually were employment expenses).

Scenario 2. Yes, calculation correct.

Scenario 3: No, because the personal allowance is still £7,475 not £8055.  So the calculation remains £23113 - £7475 - £4018 = £11620, tax to pay £2324. The deduction for the expenses is part of the £4,018 (tax on £580 of this has been saved by use of the 805L tax code during the year, and there is further repayment due of £687 on the remaining £3438 of expenses).

All the above assumes that the adjustment to the tax code relates to estimated 2011-12 expenses.  The HMRC website at http://www.hmrc.gov.uk/incometax/understand-refund.htm#2 states "If you've paid too much tax this year HMRC may send you a new tax code and your employer or pension provider will pay you your refund with your wages or pension. If you've paid too much tax in earlier years HMRC works out how much they owe you and sends you a refund in the post or by bank transfer."  So the 2011-12 tax code is extremely unlikely to have been adjusted for overpaid tax in 2010-11.

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10th Jun 2012 22:20

Sparkler - scenario 1 is based on 2010/11 employment expenses ( £580) - claimed on P87 form. HMRC instead of refunding overpaid tax ( by cheque, Bacs) changed tax code of 2011/12.

 

 

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10th Jun 2012 22:22

I am 99% percent sure that tax code has been adjusted for the overpaid tax. But will check it tomorrow. Thank you all for your replies.

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10th Jun 2012 22:24

Yvonne

Despite being told many times you don't to grasp that the personal allowance doesn't change. The tax code can change but it is something different to a personal allowance.

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10th Jun 2012 22:26

Peter - I did notice what you said but I need to get it right in my head:)

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10th Jun 2012 22:34

A good plan to check tomorrow what the coding notice says, Yvonne.  You can post the actual wording of the calculation in the coding notice on here if that helps. 

And if it does turn out that the adjustment is due to overpaid tax from 2010-11 being used to make an adjustment to the 2011-12 code, then probably HMRC are going to need to advise how to actually reclaim the tax which would still remain due from 2010-11, because the 2011-12 self assessment return is unlikely to be the means by which this can be achieved. 

(I assumed that scenario 1 was as you said - HMRC changing the tax code for 2011-12 rather than refunding the overpaid tax - but used my reply above to illustrate how the 2011-12 self assessment tax return will always use £7475 as the personal allowance, because that is the personal allowance for 2011-12!)

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10th Jun 2012 22:36

Forget about the tax code

Do the tax return without any reference to the tax code.

Calculate the income, expenses, tax payable for each year and then compare that to the tax paid.

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By K81
11th Jun 2012 08:40

Yvonne

what we are trying to tell you in a round about manner is that you do not include your tax code anywhere on the return.

You declare your income, tax deducted and any expenses that you wish to claim.

HMRC software already knows what your personal allowances are and the expenses that you claim will increase the tax free portion of your income to work out how much tax you may have overpaid.

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By sholman
11th Jun 2012 08:46

Assuming it is an overpayment from an earlier year that has increased the code number then all that is needed is to go to Section 4 of your tax return . Under adjustments to tax due you enter in the box ' Decrease in tax because of adjustments to an earlier year' an amount equivalent to the increase in the tax code in terms of tax. This seems to be £585 @ 20% ie £117 tax and you should get the right result. You need to satisfy yourself that there was a genuine adjustment for the earlier years.

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By ACDWebb
11th Jun 2012 09:03

Is it not just that

HMRC amended your 11/12 coding to give estimated business expenses based on your 10/11 claim? The amendment is/was not to give effect to the previous years refund due.

You will enter details of taxable income, tax deducted by the employer and actual business expenses claimed for 11/12 in the on-line return and HMRC will make the eresulting refund due for the year.

That then begs the question, what did HMRC do about the 10/11 claim and refund due. I would say it is highly unlikely that they would amend a later years code to give effect to an earlier years refund. Underpayment, yes. Overpayment, No. That would mean that the refund would be spread over the whole of the following year and would require a further review of the later year to make sure the coding adjustment had given the refund. Why on earth do that when you can conclude the whole matter by making a repayment.

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11th Jun 2012 09:30

Phoned HMRC and chcked the coding notice.

2011/12 tax code has been changed to refund overpaid 2010/11 tax.  It is not an estimate for 2011/12 expenses.

 

The HMRC siad that I need to put that info about 805L tax code in additional info and they will chek that and repay extra £116.

 

Sholman - I was thinking of using section 4 as I would get my figure right straingt away but it's not quite right...

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By ACDWebb
11th Jun 2012 09:43

Engaging Smug mode

Yvonnel_b wrote:

Phoned HMRC and chcked the coding notice.

2011/12 tax code has been changed to refund overpaid 2010/11 tax.  It is not an estimate for 2011/12 expenses.

 

The HMRC siad that I need to put that info about 805L tax code in additional info and they will chek that and repay extra £116.

 

Sholman - I was thinking of using section 4 as I would get my figure right straingt away but it's not quite right...

Smug mode fully engaged :)

http://www.youtube.com/watch?v=qMa0CxgCqiM

And you do not need to make any adjustment to any section, other than additional information. Anything else is likely to confuse matters futher

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11th Jun 2012 09:43

Never...ever....have i seen

 an overpayment of tax coded into a following years PAYE code (but I guess there is always a first time!)...Sholman touches on a place where you can detail this (although in my experience i have only ever used that when carrying back losses to get tax relief from an earlier year).

 

All seems a little strange......would be interested to know what the exact wording relating to the £580 allowance adjustment in the 11/12 PAYE code....

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11th Jun 2012 09:44

:)

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11th Jun 2012 09:54

Too slow completing my

first answer before this mornings reponses came thru....would agree entirely with ACDWebb....would also ask about the interest due on the repayment (would love to see how they intend to deal with that). 

 

A repayment made thru a PAYE code.....I have now seen it all!

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By ACDWebb
11th Jun 2012 10:22

That was of course a call centre drone

I still cannot believe that it is anything more than an estimate for 11/12 based on 10/11 and nothing at all to do with the 10/11 refund due, which apparently remains due in full.

In the Additional Information box ask/tell them to review 10/11 and 11/12 on the basis of the actual information in the returns/claims not some notional attempt to repay an earlier year through a later ones coding.

To attempt to repay by coding adjustment in a later year is just ridiculous. Why would a taxpayer (not a customer!!!) want to be drip fed a refund through a coding adjustment that they could have straight away in a single cheque. That makes no sense at all.

If you cannot get any sense ou of the drone then insist that it is escalated to someone higher up the food chain

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By Big Ade
11th Jun 2012 10:32

I've found an explanation from HMRC

.....at http://www.hmrc.gov.uk/manuals/sammanual/SAM121660.htm, (but satisfactory?)

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11th Jun 2012 10:32

Tax code notice document

You need to read the tax code notice to understand what the change is for. Don't believe what HMRC call centre monkeys say.

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11th Jun 2012 10:43

@big ade....great find....

seems to be the processs they have used...of course in this case it seems completely inappropriate (on the basis that a repayment claim was made in time on the appropriate form as indicated).

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By ACDWebb
11th Jun 2012 15:07

If that is what they have used

it does not seem to be the correct use of the Manual.

That is dealing with the small annually agreed expense items normally agreed by unions or staff bodies for large employers for things like uniform laundry costs at a flat rate of a few £'s a week.

Based on the claims referred to by the OP that is not what is being dealt with here

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By twj4789
11th Jun 2012 19:48

Refund

Hi all,

I haven't read all the posts but think everyone maybe focussing on the wrong thing (an observation on the posts I have read!).

The overpayment and tax code adjustment are not in relation to the current year, as such the Self Assessment Return would be correct with the £7475 allowance. That would calculate the tax due in the year for the return.

The overpayment was in relation to a previous year. Once the online return is submitted, you should see on the clients HMRC account an overpayment for 2010/2011 year and an underpayment on 2011/2012 year.

Unfortunately HMRC are not always quick to realise this and in my experience you should ring HMRC once the return is accepted and make sure the contra entry is put in. Make the client aware you have done this, it will stop them getting angry if they receive a tax bill at their door for the 2011/2012 year.

(It may currently say on the 2010/2011 "correction to be made via PAYE). Ignore this as once the return is filed they will make the adjustments.

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12th Jun 2012 08:08

@twj4789...you probably need to read
through the whole lot. the tax adjustment in 2011/12 does indeed relate to 2010/11, the issue being that it is actually a refund being coded out (not an underpayment) - just plain stupid by HMRC.

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12th Jun 2012 09:49

sort of an Overpayment

I saw a ew of these in my days in HMIT. some less than scrupulous accountants got wind of the fact large employers like the fore service, M&S, NHS etc had staff in work related clothing and so they were entitled to a flat Rate Expense, which they could claim for the previous 6 years. as the refunds were small and the Inspector was miffed these accountants were blitzing the employees and charging them £35/£50 a pop it was decided to deal with them as a coding adjustment, thus bypassing the actual refund for 6 back years of what was probably £20 a year.

so a one off allowance was given via the PAYE code. Which is what that above link refers to and why the OP has been told it is an overpayment.

If it is due simply put in an expense of the amount due. as others have said the personal allowance is the personal allowance.

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12th Jun 2012 18:41

Believe or not but here it is ( as per PAYE coding notice):

" Your tax code for the year 2011/12 is 805L.

Here is how we worked it out:

- your personal allowance £7475

- ealier years adjustments £+577

A tax free amount £8052"

 

Still do not know how to get my £116. Will send submit tax return online are write them additional note:)

 

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12th Jun 2012 18:50

Phone them

Have details of both years tax returns and phone HMRC. Use the correct personal allowances and don't use tax codes. If the combination of the two years shows a tax refund ask for a repayment.

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13th Jun 2012 10:27

Agree with Peter...

get on the phone and ask them to adjust the tax code. 

 

What a completely nuts situations - seeing i guess is believing.....

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