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Where Taxpayers and Advisers Meet

Understanding personal tax code

matthew1001
Posts:3
Joined:Fri Apr 28, 2023 1:09 pm
Understanding personal tax code

Postby matthew1001 » Fri Apr 28, 2023 1:15 pm

I earn £135k and my new tax code for this year is 629T.

I recently increased my pension contribution to bring my taxable income down closer to £100k. I think it is actually around £103k now (I make 23% contributions along with my employers contribution of 6%).

Is 629T about correct for those numbers?

I am considering increasing my pension contribution now that the tax free allowance has gone up to £60k. Will that bring my personal tax code up closer to 1257T? Thanks in advance.

D&C
Posts:168
Joined:Mon Nov 25, 2019 11:35 pm

Re: Understanding personal tax code

Postby D&C » Fri Apr 28, 2023 5:40 pm

No one can answer as that as you haven't explained how you are getting extra money into your pension.

There are 3 main methods and although they all have tax benefits they work in totally different ways and only 2 actually reduce your taxable income.

However your Personal Allowance isn't basis on your taxable income, it's adjusted net income which matters.

Also, how is the 629T made up? You will either have a tax code notice or can check this on your Personal Tax Account.

That info is important and you need to provide it as well.

The 3 methods are,

Net pay
Relief at source
Salary sacrifice

D&C
Posts:168
Joined:Mon Nov 25, 2019 11:35 pm

Re: Understanding personal tax code

Postby D&C » Fri Apr 28, 2023 5:41 pm

No one can answer as that as you haven't explained how you are getting extra money into your pension.

There are 3 main methods and although they all have tax benefits they work in totally different ways and only 2 actually reduce your taxable income.

However your Personal Allowance isn't based online your taxable income, it's adjusted net income which matters.

Also, how is the 629T made up? You will either have a tax code notice or can check this on your Personal Tax Account.

That info is important and you need to provide it as well.

The 3 methods are,

Net pay
Relief at source
Salary sacrifice

matthew1001
Posts:3
Joined:Fri Apr 28, 2023 1:09 pm

Re: Understanding personal tax code

Postby matthew1001 » Fri Apr 28, 2023 6:57 pm

Thanks for the detailed response.

My pension contributions are through salary sacrifice.

I wasn't aware you could see the breakdown of your tax code through the HMRC tax account. It says:

Personal allowance: £7,893
Medical insurance deduction + misc other: £1,595
Tax free amount: £6,298

So I guess I'm wondering if increasing my pension contribution by ~£6k would increase my tax allowance by the same amount?

bd6759
Posts:4298
Joined:Sat Feb 01, 2014 3:26 pm

Re: Understanding personal tax code

Postby bd6759 » Fri Apr 28, 2023 9:54 pm

When your income is on the cusp like this you will not know your exact tax liability until the year has ended. In the meantime, your tax code will try to ensure approximately the right amount of tax is deducted. If you don’t want a tax bill at the end of the year, you want your code lower rather than higher so as to overpay rather than underpay.

billypiper
Posts:114
Joined:Wed Aug 06, 2008 4:10 pm

Re: Understanding personal tax code

Postby billypiper » Sat Apr 29, 2023 9:44 am

i offer a free post tax year review of your tax position free of charge


Call me 07802704840

Dennis Wren

D&C
Posts:168
Joined:Mon Nov 25, 2019 11:35 pm

Re: Understanding personal tax code

Postby D&C » Sat Apr 29, 2023 4:27 pm

Your Personal Allowance would be available in full if your adjusted net income is less than £100,002.

Salary sacrifice means you aren't actually contributing to a pension, you are agreeing to a reduced salary in return for additional employer pension contributions.

You will need to factor in all taxable income when determining your adjusted net income. So thing like company benefits, dividends of savings interest are all counted. This includes taxable income that is taxed at 0% such as the first £500 of interest and £1,000 of dividends.

matthew1001
Posts:3
Joined:Fri Apr 28, 2023 1:09 pm

Re: Understanding personal tax code

Postby matthew1001 » Mon May 01, 2023 6:46 pm

Those replies are all really helpful, thank you.

I have 2 follow on questions if anyone is able to help me with them.

- Does my personal allowance before health insurance (& misc) deductions sound correct given that I make 23% contributions? My noddy maths suggests that 23% = £31,050, which means income after contributions = £103,950. £7,893 doesn't seem to make sense given that basic calculation (I'm sure it's more complicated than my sums suggest)
- If I increase my pension contributions would you expect HMRC to adjust my tax code immediately (within the first month or two of the new payments) or do I have to inform them separately that I think the tax code needs changing?

Thanks again, the responses have been really useful.


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