40% Tax Rate

[MB1983]

Hi All,

This is my first post here. I'm new to the world of contracting. I'm currently in a two month contract and working through an umbrella company initially. Since receiving pay for the first month, I have received notification from HMRC that my tax code is now D0 and that I'll pay tax at 40% on my income. From what I've read online, it appears that they'll be taking 40% on all income, not just the amount over allowance + higher-rate threshold. So it seems that they'd be taking more tax than I should pay and that the onus will be on me to apply for a rebate at the end of the tax year if I want that money back. Is that the way they typically operate or could they have made a mistake? Would a permanent employee on, say, £50k be on the tax code D0?

[gbonner]

Same happened to me when I first joined an umbrella. I think you get the D0 code as your earnings to date are above the basic rate threshold. Once you send your p45 to your umbrella they will change your tax code and your income tax should be adjusted in your next pay.

[Clare@InTouch]

As above - you're being taxed as if this was a second job and your basic rate allowance is being used elsewhere. When HMRC process your P45 they should realise this is your only employment as then give you a normal tax code. You can always call them to make sure.

[LisaContractorUmbrella]

Did your umbrella company not ask for your P45? How long have you been employed by them?

If the D0 coding notice has been issued as a result of HMRC thinking that your employment with the umbrella company is a second job then they must have had some sort of communication from your umbrella company e.g. a P46

[aardvark]

It should come out in the wash. On the plus side, there will be a month where you pay much less tax!

[Jessica@WhiteFieldTax]

It should come out in the wash. On the plus side, there will be a month where you pay much less tax!

Yep, that.

Try and get it corrected ASAP, probably a phone call to HMRC if you can bear the tedium of waiting in the queue is best.

Make sure your umbrella or someone else do a annual review of your tax after tax year, and possible a self assessment return; that will make sure everything is accounted for.