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A tax code is something which a person may well notice on their payslip. And, during a time where every penny counts, ensuring it is correct will be more important than ever.
It’s something which digital payslip company PayDashboard has warned about.
With millions of Britons feeling the financial impact of the coronavirus crisis, now more than ever, employees will be needing information about their pay and what tax relief might be available to them, PayDashboard said.
And, with National Payroll Week falling this month, UK employees are being reminded about the ways they can be salary savvy with their income and taxes, to ensure they’re taking home the maximum amount of pay they are owed.
Paul Gibbons, COO at PayDashboard, explained that this includes checking a tax code is correct.
“Millions of people are put on the wrong tax code each year, and thousands of us are due refunds but don’t even realise it,” he said.
“The wrong tax code results in either overpaying tax and having to wait for a rebate, or underpaying and having to repay this most likely from a tax code adjustment that means you take home less pay until you’ve repaid everything.
“Understanding how and why your tax code changes is essential to ensure you don’t end up caught out, and it takes just a few minutes to check your payslip and the tax code against the list on the HMRC website.”
For those facing redundancy or changing jobs, it’s something which may well be of particular importance.
“If you change jobs, check your tax code,” Mr Gibbons continued.
“Emergency tax codes regularly lead to people paying the wrong amount of tax when they are changing jobs and don’t provide a copy P45 to their new employers.
“New starters will often be put on a BR, 0T or W1/M1 tax code as an ’emergency tax code’ and pay tax at an incorrect rate for several months until their records are updated.”
It’s possible to check what one’s tax code is online, using the “Check your Income Tax for the current year” service on the government website.
This tool also enables a person to see whether their tax code has changed.
Should a person need to, they can use this service to tell HM Revenue and Customs (HMRC) about changes that affect an individual’s tax code.
Currently, the tax code 1250L is what is used for most people who have one job or pension.
The numbers in a tax code are what tell a person’s employer or pension provider how much tax-free income they get in that tax year.
Meanwhile, the letters in a tax code refer to the individual’s situation and how this affects the Personal Allowance.
For instance, L means that they are entitled to the standard Personal Allowance – currently £12,500.
Meanwhile, M and N refer to the Marriage Allowance.
The former means the individual has received a transfer of 10 percent of their partner’s Personal Allowance.
The letter N refers to a person who has transferred 10 percent of their Personal Allowance to their partner.
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