I am assisting a neighbour with her Tax Coding for 2016/17.
She will have the following income :~
State pension £9856, Private pension 1 £1500 (code BR), Private pension 2 £1890 (Code 18L)
Estimated Bank/BS Interest £3600
Coding (pension 2) received shows :~
Less State pension 9856
Untaxed Interest 1956
Net Tax free amount 188 (hence Code 18L)
We asked HMRC what was the basis of the Untaxed Interest calculation and their reply was:~
“The new PSA ---- allows the 1st £1000 tax free there after you will be taxed at 20% on £2600. The amount of Tax due would be £520 this is rounded up to 100 percent figure of £1956 in order to collect the tax due. I have reviewed the coding for 2016/17 and on the information provided your tax code is correct” (this is exactly as they set it out ~ not my mis-type or omission of punctuation etc.)
I agree the calculation of the £520 but cannot understand the “rounded up” or the basis of the figure 1956! This code seems to me to leave an underpayment of £328.80 at the year end. Is it me? Am I having a bad Monday?
Your thoughts would be much appreciated.