K tax code and self assessment

[yanekcastell]

Hi there

I’m pretty confused about having to pay extra tax from a self-assessment and receiving a K tax code from HMRC for 2023/24.

During 2022/23, I thought I had done well when my employer went public and I exercised shares. However, this was treated as income by HMRC which put me into a higher tax bracket. The shares subsequently decreased 99% in value so I have never actually received any additional income.

Long story short, I asked my accountant to help me with completing a self-assessment for the first time and we calculated that I owed HMRC an additional £4998 for the 2022/23 tax year. In parallel, when I changed employers this year, I have received a K1258 tax code. My accountant originally advised that this tax code was for HMRC to deduct additional payments for the £4998 figure from 2022/23 but when I contacted HMRC they said it relates to the personal allowance.

This is what my accountant says:

A K tax code means that you owe the tax man from the last tax year and you owe them more than your tax-free personal allowance, which is £12,750 for most people. Providing you with a K code means that HMRC is able to collect the tax owed from the previous year, in this tax year.

So is the £4998 because HMRC incorrectly calculated my income and then the K tax code is because of my loss of personal allowance?

So now I’m really confused as it feels like I’m paying extra tax for 2022/23.

Thanks

 

[mickey38]

@yanekcastell HMRC can not collect an underpayment that is more than £3,000 through your PAYE code.

A ‘K’ tax code essentially means that you have minus personal allowance, in your case paying additional tax on £12,580 of your income (based on the K1258 code). My suggestion would be to contact HMRC again and request a more thorough breakdown of the code.

 

[bridgetbride]

@yanekcastell It could be hmrc think your circumstances will be the same again this year (was your total income on the return over 100k?) but your accountant is definitely wrong both in the reduction being to collect the £4998 and also in their explanation of K code.

Your code gives your tax free allowance - which is the balance of your allowances and deductions. So for a lot of people their only thing in the "balance" is their personal allowance of 12570 so get a code of 1257L. However if the deductions are greater than the allowances, this results in a K code.

This means instead of getting an amount tax free each month, you are being taxed as if you earn more than you do.

You will, as already suggested, need to contact hmrc to check why and whether it is correct. If it isn't correct they should be able to issue a new code before the end of the tax year so you're refunded anything you overpaid.