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Client hitting 40% across two employments

A client of mine has hit the 40% tax band but taxed correctly according to their tax codes

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I have just completed a tax return for a client that has had a bit of a shock.  Basically, the reason that the client has a tax return prepared is due to the child benefit that they receive, as they earn over £50k.  The problem this year was that due to the fact that one employment (the "day job") came to a number that was quite a lot less than the "second job", yet had the standard tax code applied to it, the tax on that was not that great.  The "second job" had a basic rate tax code applied to it, and whilst this job paid the client a lot more than the "day job", as it was below the higher tax rate threshold, the entire amount was taxed at 20%.  However, when combining the two incomes, they came to a lot more than the higher tax rate threshold, which has of course resulted in a tax burden of the 20% difference on the excess.  I guess my question is what would be a better way of dealing with this without a nasty tax surprise at the year end.  I have suggested to the client that they ask HMRC to apply their standard tax code to the job that makes them the most money, and to ask HMRC for a D0 on the other job.  That way if anything they should end up paying more than they should and get a refund at the end of the year.  Any thoughts?

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By SXGuy
06th Jun 2019 21:44

So when the client started the second job, why did the employer not ask them to fill out a p46?

Sounds to me like had they asked if the client had another job, your client would have been coded correctly.

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By jcace
to SXGuy
06th Jun 2019 21:53

The client would have been put on a BR code, which appears to be what happened.

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to jcace
07th Jun 2019 09:15

Yes that’s correct, they have a BR code on the second job.

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to SXGuy
07th Jun 2019 09:22

The tax codes are correct, and if the two jobs combined were less than the threshold then there would have been no liability. The other possibility I suppose is to ask HMRC to adjust the client’s tax code but they would still only be taxed 20% at the most at source.

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to shinobi_brian
07th Jun 2019 10:25

shinobi_brian wrote:
..... but they would still only be taxed 20% at the most at source.

Not so. I had a client's employee on a D0 code last year. Incorrectly, as it happened .......

But they're still issued.

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to lionofludesch
07th Jun 2019 19:10

What I mean is, if one code ends L and the other is a BR and both incomes are less than the 40% threshold (as you would expect with a BR), the maximum tax charged would be 20% on all amounts earned above the PA for the L code and all amounts earned for the BR code. Maybe a T code might work?

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to shinobi_brian
07th Jun 2019 19:26

A T code ? No - how would that help ?

T codes don't get updated automatically at the year end. That's the only difference between those and all the other codes.

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By Matrix
06th Jun 2019 22:27

I have not come across this before but it must happen quite often. I would do as you suggest or ask HMRC to allocate correct codes to each based on the P60s.

If only if there were a digital system where employers filed monthly pay so HMRC would know as soon as taxpayers hit the higher rate....

It must be the same as the loss of PA, this is only adjusted when HMRC get the P60.

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07th Jun 2019 09:01

Can you not tick the box on the return that tells HMRC to collect the tax owed through your client's tax code?

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to bettybobbymeggie
07th Jun 2019 09:14

Yes of course but the amount owing is more than £3k

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07th Jun 2019 09:27

The tax isn't due till Jan 2020. Your client just needs a bit of discipline to pay the money that you want deducted under PAYE into a bank account so that it's there to meet the January liability.

In training them to save, you're doing them a favour.

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to Tax Dragon
07th Jun 2019 09:43

Yes, that was the gist of the call I put in to them once the return was complete. I hope they have the discipline to do it.

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07th Jun 2019 10:01

I don't tend to deal often with tax codes so some of the intricacies of the system pass me by but is there really no way for someone with two jobs, say one paying £20,000 and one paying £40,000 to have the correct PAYE deducted via their tax code(s)?

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to Duggimon
07th Jun 2019 10:23

On that split, no, there isn't. If it was £50k/£10k, maybe. The issue is privacy. To get it spot on, one employer would need to know what the other was paying him.

But there are things you can do to soften the blow. I would generally have the taxpayer's personal allowance set against his main job (or, rather, the job with the higher income). Maybe a D0 code against the lower income job - which could be too much but might suit the client.

You probably need to ask the client whether he prefers to pay too much or too little at source and base your plan on that.

He can either a bit of self discipline, pay too little at source, but stick some money away for the inevitable rainy day.... or ..... pay too much and get a big refund every Spring. His choice.

Oh - and don't overlook his NI position. Sounds like he could have a refund due.

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to lionofludesch
07th Jun 2019 14:07

Surely it can be done correctly, if the math is done before calling HMRC to instruct application of specific codes for each employment?

Tax payer doing the calculations also means no privacy issues.

As someone else has already mentioned, 40% on all sources will always lead to a refund - IMO a preferable position to paying a lump each year, if the individual can afford the months in between the deductions and the refund.

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to alialdabawi
07th Jun 2019 15:05

Could be, in theory, if you know what the salaries are going to be for the rest of the year.

Quite often, though, you don't.

Plus if HICBC is involved and the income is between £50k and £60k, there's an added complication.

I'm not sure my fees for all this would justify the benefit. After all, it doesn't save any tax. It just moves the payment dates around.

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07th Jun 2019 13:57

Where the main employment doesn't use both the personal allowance and the basic rate band, but the second employment pushes income into higher rates, it will never come right via PAYE. A Y/E adjustment via a SATR or P800 will always be needed.

The problem here is compounded by fluctuating income levels with a switch between main and secondary sources. It was a problem waiting to happen.

As one poster commented you can either have a DO (40%) code for the secondary source and pay too much tax, or a BR code and pay too little. The answer depends on how much spare BR there is on the main source.

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08th Jun 2019 09:29

The second code should be taxed at BR, as some falls into the basic rate band.
The larger source should include an "Adjustment to rate bands" adjustment as a deduction in the code. THis will increase the tax paid on the larger source to balance out the underdeduction on the second. It does involve HMRC's systems using estimates so will require a P800 at the end of the year, but the balance due/repayable should be relatively small.
A phone call to the Agent Line to agree suitable estimates should resolve this - although won't help for 2018/19!

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to janewanless
10th Jun 2019 11:12

janewanless wrote:
It does involve HMRC's systems using estimates so will require a P800 at the end of the year,

No it doesn't. The taxpayer is within SA, so the P800 is redundant.

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10th Jun 2019 10:50

This is precisely where the "adjustment to rate bands" deduction in tax codes comes in. I have a client with two pensions in this situation and the lower one is coded BR with the higher rate tax due (estimated) being collected by a restriction in the code for the primary source. A phone call to HMRC should sort this out.

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By adjadj
10th Jun 2019 14:17

I think that I would advise the client to take a bit of interest in their own tax affairs and when their total income exceeds x then to put aside 20% of their earnings to pay the tax bill

Most of the suggestions to date involve a lot of work for others.

Why should I as a tax payer expect HMRC to spend time dealing with a issue that is easily remedied at source by someone taking responsibility for their own affairs

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to adjadj
10th Jun 2019 15:06

Good luck with that!

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10th Jun 2019 18:48

Just ask HMRC to adjust one of the tax codes (by reducing it) so that when applied it ensures more tax than 20% is deducted.

So if you think that you'll be in the HRT band by say £10,000 and will owe an extra £2,000 tax, then you need to reduce the tax code by 1000 (£2,000 / 0.2 = £10,000)

It may even result in a K code.

This is not rocket science!

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By birdman
10th Jun 2019 21:16

I thought dynamic coding was introduced to solve this sort of problem.

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10th Jun 2019 21:47

Yes it is dynamic, April AND November :)

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