How much tax you pay varies depending on your situation
HMRC has released an update regarding some additional tax that certain customers are required to pay. The authority responded to an enquiry by breaking down the figures to clarify how tax bills are calculated.
A customer got in touch with the authority regarding a message they had received. They said: “Please explain why my tax code has altered you say I owe £847 but you want to reduce my allowance by £4,235 and you will take £70 a month. Why has the tax code not been reduced by £847? This just looks wrong.” They shared a screenshot of a message received from HMRC informing them: “You did not pay enough Income Tax for a previous tax year.”
The message confirmed they owed £847 and outlined how this sum would be recovered. The message said: “To collect this we have reduced your Personal Allowance by £4,235. This means that you will pay more than until 5 April 2027, so that we can collect the 3847 owed. Your tax code has been adjusted for this.”
Your personal allowance refers to how much you can earn each year without being liable for income tax. The standard personal allowance stands at £12,570 annually.
The message also contained information regarding “what happens next”. This outlined: “At the end of the tax year we will assess your actual income for 6 April 2026 to 5 April 2027. We will contact you if you owe any tax or if we owe you a refund.”
In response to the enquiry, HMRC said: “We reduce your allowance by an amount that, when taxed, will collect the amount of extra tax to pay the underpayment. In your case, as a basic rate taxpayer, the restriction of £4,235 will collect £847 (£4,235 x 20% = £847).” The basic rate of income tax stands at 20 per cent, applied to annual earnings between £12,571 and £50,270.
The higher rate of 40 per cent is charged on income between £50,271 and £125,140. Earnings exceeding this threshold are taxed at 45 per cent.
Additionally, it’s worth noting that once your income surpasses £100,000, your personal allowance decreases by £1 for every £2 earned above this level. Consequently, when your income hits £124,140, your personal allowance is eliminated entirely.
