I really should understand this sort of thing after 20 years contracting but.....! It's never really occurred to me to look into it. Not very important at all but just made me curious.
Suppose HMRC want to recover £1k of unpaid taxes via someone's tax code. It appears that they'd change the tax code from, say, 1250L to 750L, giving £5k more taxable at 20%. All fine and dandy. However does this reduction in the tax allowance get automatically added back to the 20% band?
In other words, if you have a code of 750L, will your 20% tax band expand to £42,500 rather than the normal £37,500, so that 40% doesn't "kick in early"? Or does it stay at £37,500 and the excess tax (assuming you're earning more than £45k) gets fixed at the end of the tax year?
Suppose HMRC want to recover £1k of unpaid taxes via someone's tax code. It appears that they'd change the tax code from, say, 1250L to 750L, giving £5k more taxable at 20%. All fine and dandy. However does this reduction in the tax allowance get automatically added back to the 20% band?
In other words, if you have a code of 750L, will your 20% tax band expand to £42,500 rather than the normal £37,500, so that 40% doesn't "kick in early"? Or does it stay at £37,500 and the excess tax (assuming you're earning more than £45k) gets fixed at the end of the tax year?
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