How do tax codes work?

[someone]

If you do a tax return every year, how are tax codes supposed to work?

I've just got my tax code for 2018/19 tax year. Due to me switching most of my gift aid giving to payroll giving I wanted to adjust my code from 278T to 50T (because I thought I understood how these things worked!)

"If you think your tax code is wrong, you can check and let us know of any changes online, go to gov.uk/personal-tax-account"

So I did. And I couldn't find anywhere where I could change anything but I did see this:

Estimated tax you owe
This section is Your PAYE Income Tax calculation
6 April 2017 to 5 April 2018
We think you’ve paid too little Income Tax this year and owe £1,964.43. We’ll start to collect this straight away.

We’ll collect £589.04 from your taxable income before 5 April 2018. To do this, we’ve reduced the tax-free allowance in your tax code by £11,375 to collect this in equal amounts. You can get help from HMRC if you can’t pay this.

We’ll collect £1,375.39 between 6 April 2018 and 5 April 2019.

Now I think that's probably about correct. My spreadsheet estimates 1831.64 underpaid this year.

So far, so good.

But... I do my tax return in April and my tax return says "you owe 1850 which you should pay by 31st Jan 2019"

But won't I already have paid most of it by then via my tax code change? I also ticked the box on my last tax return to say "do not collect the tax I owe using my tax code"

Also, my tax code that they've just sent me says:
Your tax-free amount
Personal Allowance 0
Gift Aid 2782

Total tax-free amount 2782

Tax code 278T

Where does the 1300 that they're supposed to be collecting come in to this?


This is going to make trying to make sense of whether I'm paying the right tax or not almost impossible. This year back in about August I could see that I was going to significantly underpay and I called them to adjust my tax code. (Because of redundancy dramatically increasing my income and pension tapering I was going to overpay into my pension so got too much tax relief in my old code plus the pension tax charge) But if there had been payments that were adjusting a previous years tax then I wouldn't necessarily have noticed that I'd be underpaying.

In fact, my spreadsheet guestimates that I will *overpay* 1850 in tax in the 2018/19 tax year - which perhaps makes sense because that 1850 is the payment that I won't make in January that my tax return tells me I will make. Or something like that.


Assuming nothing changes when I do my 17-18 tax return it will say I owe no tax? Or 1300? Or 1850?


Do HMRC employ people to deliberately make this complicated? This isn't even politicians.

And, unfortunately, I do intend to make some pension contributions in the 18-19 tax year. Which is going to make it even harder to get HMRC to use the correct tax code.

[pawncob]

HMRC are always so far behind that events render their efforts rather pointless. By the time they issue amended codes another tax year has arrived making a further adjustment necessary. The tax shown as due after return submitted will be correct, but will take no account of arrears already paid, so you end up overpaying. C'est la vie.

[someone]

HMRC are always so far behind that events render their efforts rather pointless. By the time they issue amended codes another tax year has arrived making a further adjustment necessary. The tax shown as due after return submitted will be correct, but will take no account of arrears already paid, so you end up overpaying. C'est la vie.

Thank you. That makes sense.

Having done a bit more digging I cannot make head nor tail of what HMRC are saying for my code. But it's close enough for government work so I won't worry about it any more.

p.s. I found where to change some of the numbers that go into calculating your tax code but the gift aid part appears to not be included so I guess I'll have to phone them.