HMRC Pay As You Earn (PAYE) Tax Codes
Your tax code is used by your employer or pension provider to work out how much Income Tax to take from your pay or pension, you will be able to see your tax code on your payslip provided by your employer. It is a good idea to check you are currently on the right tax code as it will determine the amount of Pay As You Earn (PAYE) tax you are charged on your salary.
Every tax code is made up of letters and numbers. The number 1250, for example, should reflect how much tax-free pay you are allowed to earn in each tax year – as a general guide, you need to multiply the number by 10 to get the total amount of income you can earn each year before being taxed. If your tax code is 1250 then you will not pay tax on the first £12,500 earned on your salary.
The amount of tax you are due to pay can be affected by your tax-free allowance, these can include
- Pensions contributions
- Personal Allowance
- Gifts to Charity
- Blind persons allowance
- Interest payments on qualifying loans
You can read about the certain payments that can reduce the amount of tax you pay here
If you notice your tax code has changed, this could be for any of the following reasons
- If you have started a new job, your new employer may not have received your P45 yet, this will trigger an emergency tax code. Once the employer has the P45 your code will then be adjusted and the right amount of tax deducted.
- If there is a change in your income, if your income increases or decreases there can be a change in your tax-free allowance.
- State benefits such as employment and support allowance, state pension, widows pension etc can affect how much income you receive on your payslip, if you stop and start these benefits they can affect your tax code.
- Benefits from your employment such as private health care, car allowance, if you opt in and out of these benefits then this again can affect your tax code and pay.
You will usually receive a PAYE code notice in the post from HMRC if your tax code is updated, always carefully check that these details implement your current tax-free allowance.
HMRC will need to be contacted if you believe your tax code is wrong, as this means you could have either underpaid or overpaid in tax. In the case where you have underpaid, HMRC will bill you for the amount owed, with an over payment they will either adjust your tax code so that you pay less tax and receive more wages or sometimes if it is for a previous tax year they will pay you the amount owed in full into your bank account.
As a client of Rebate My Tax we will be the ones to contact HMRC for you regarding any issues with your tax code. We pride ourselves on taking any stress away from our clients, whilst giving the most professional 5* service.
If you require more information on tax codes, please contact us directly. You can also check out the different types of tax codes here