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Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 12814
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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Im a self-employed freelance

Resolved Question:

I'm a self-employed freelance translator making a profit of about £25,000 a year on my translation work. I'm also receiving the state pension, a small private pension and an even smaller pension from the USA for the few years I lived and worked there. I've been completing my self-assessment form every year without problems. Now, suddenly, I've received three different "PAYE tax codes" from the Inland Revenue within two weeks (I don't know which, if any, of these codes is right) also telling me the Revenue has considerably reduced my tax-free allowance so as to take tax from my private and state pensions before I get them (I think that's what they mean). I've always paid tax on them, of course, in my twice-yearly lump-sum tax payments. What's this all about? Is it right to reduce my tax-free allowance like this? I can't get through to the Revenue on the "help lin" which is permanently engaged. Please can you advise me? Thanks in advance, JennyXXX@XXXXXX.XXX.
Submitted: 4 years ago.
Category: UK Tax
Expert:  Sam replied 4 years ago.
Hi Jenny

Thanks for your question

If you code advise what tax codes have been issued, with the date of issue and the income on which you are advised the code will be applied against - that would be great
Also can you advise whether you have filed your 2010 self assessment form yet - as this might explain also why so many tax codes


Could you also advise your date of birth

Thanks

Sam
Customer: replied 4 years ago.

Dear XXXXX,

Thank you for your help.

On 7th May 2010 I received two separate notices from the Revenue, both dated 14.4.2010, one saying that for the year 6.4.2010 to 5.4.2011 my tax code had been changed from 11P to 11L and the other saying it had been changed from 313T to 13T for the same tax year. Yesterday (17th May), I received another notice from the Revenue (dated 2nd May) saying that my tax code for the year 6.4.2010 to 5.4.2011 was 11 L. The latest notice says my tax-free allowance has been reduced from £6475 to £6365 (at least that's what I think it means, but it's not at all clear). Maybe I should email you a photocopy of these notices as I can't really explain them to you because I don't understand them myself!

My private pension provider says they only have one tax code for me, 13T.

Yes, I have already filed my 2010 self-assessment form - on 2nd May 2010.

At present I receive about £6,230 a year in state pension and about £2,300 a year as a private pension (both before tax) and I earn a variable income from my main activity which is freelance translating - in 2009 to 2010 about £25,000.

I have written asking the Revenue for an explanation but they don't answer letters and their telephone "help line" is permanently engaged.

My date of birth is 10th October 1937.

I hope this will help you to help me.

Kind regards,

Jenny

 

 

Expert:  Sam replied 4 years ago.
HI Jenny

Thanks for your response

Ok - as you are over 65 you are in fact due the age related allowances of £9490 - however this is if your income is less than £22,900 which yours is not. Your income is approx £33530 (I assume the freelance work is the net amount rather than the gross) - which is £10630 over this income threshold. So for every £2 that your income is over the threshold - your tax free allowances will drop by a £1 - if this were to be implemented - then you would be left with £4175 allowances - so on the basis you have been left with £6365 allowances - this would suggest that you are over the limit by £6250 - so total income is in fact £27280 ( and this may relate to the self employed income - and the fact you have given me your gross income before deduction of business expenses and capital allowances/annual investment allowance)


Then we have to look at the fact that state pension, whilst a taxable income, cannot have tax deducted from it directly, so it always has to be included in your tax code, to be covered by allowances. Your state pension is £6230 (I assume this also takes into account the 2.5% increase made in April)
So allowances which should be £6475 less state pension £5230 leaves £245 - your code should be 24L or 24P or 24T (the letter of the end means nothing to the correct use of the code!)

You advise you have had 11P to 11L - P denotes a pensioner, L denotes a non pensioner !)

The 313T to 13T has me flummoxed ! But the PAYE system )a new computer system since Oct 2009) has been making some every strange coding issues - and I fear this is one of them.

But assuming I am right about the self employed income position and based on what HMRC advise that 13T remains - then your employer hopefully will not receive this string of silly codes - as you have !

If I am wrong about the self employment and the net figure (after business expenses etc) is £25,000 then your code will be too high and will still need looking at.

But so come back to me if you need

Thanks

Sam

Customer: replied 4 years ago.

Thank you again, Sam. Yes, I know it's complicated and confusing and it sounds as if you're a bit confused by this silly situation too! First of all, I have no employer. I am self-employed, so "my employer" cannot be informed of any tax code.

Secondly, according to the latest of the Revenue's three notices (dated 2.5.2010, received 17.5.2010), my tax code is 11L, which you say means "not a pensioner", but I AM A PENSIONER!! So what can I do? I've tried informing the Revenue but they don't reply. My pension provider says they can't do anything and have to do what the Revenue tells them. They only have 13T as my tax code.

Yes, the income I told you about from translation was my profit, after deducting allowable expenses, so my net receipts from translation. And yes, the state pension figure I gave you is the figure as from 6th April 2010, so it's the new rate.

My question really is: how can I make sure that I've been given the right tax code, particularly as it seems impossible to get a rational, personal and timely answer from the Revenue?

I've never had any problem with the Revenue before now, always completing my self-assessment form, declaring all my income (translation, pensions, interest on investments, etc.) on it and paying my tax in two lump sums per year. Why this change all of a sudden, this tax code business? I've been self-employed for 20 years and never had a tax code before - (but paid plenty of tax!).

Thanks again,

Jenny

 

 

Expert:  Sam replied 4 years ago.
HI Jenny

Thanks for your response

The code will not be advised to an employer but to the pension (private payer) to operate the tax code against. And pensions fall under PAYE -


Yes I agree being of state pension age does make you a pensioner !
And based on what you tell me I think your tax code is wrong - as the age related allowances should be reduced down to £4175 - which then has state pension deducted from if of £6230 which should leave you with Minus (-) 2055 allowances which should be the code K205 operated against your private pension

Then your self employment would be charged fully at 20% - and your USA pension considered along with any USA suffered from it , as your allowances have been utilised in full by state pension and private pension.

There is an added complication here - when a K code (minus allowances) exists and is operated against an income (in your case it would be the small private pension) it can NEVER take more than 50% of the income on which is operated against. As this UK private pension is £2230 the most tax than can legally be taken is 50% = £1146 tax -
The operation of a K code adds the minus income(£2055) to the actual pension income £2230 - which totals £4285 x 20% = £857 - so this is permissible in your case.

As something is very wrong here (and I think the issue of the many codes indicates this) I shall give you the telephone number that deals with the issue of incorrect code issues - I feel you will have a better chance to speak to someone - try ringing as soon after 8am or as close to 8pm as possible on both this number and the one on your notice of coding (s)!
Its 0845 3000 627 - see link here

Thanks

Sam


Customer: replied 4 years ago.

Thanks, XXXXX XXXXX your explanation and yes, I will try telephoning the numbers at the times you suggest, but I feel as if my entire waking life is being taken up with this annoying business that never used to cause any trouble before!!

Regards, Jenny

 

Expert:  Sam replied 4 years ago.
HI Jenny

I share your sentiments with the volumes of individuals who encounter these unacceptable problems and difficulties getting to speak to anyone

But good luck and I wish I could have had a simple answer for you - so you could put this aside -

Thanks

Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 12814
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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