By This Is Money
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Does a higher tax code mean I will pay less tax? D.K.N., Cardigan
Gobbledygook: Tax codes don't need to be confusing
Laura Howard, of This is Money's Ask an Expert section, replies: The short answer to this question is yes.
The numbers in your tax code relate to your annual personal allowance, which means how much you can earn before you pay tax.
This amount will vary according to your age and circ*mstances but the standard personal allowance for the current tax year (2010-2011) is £6,470.
This means that 647L is the most common tax code and signals that you can earn £6,470 before tax is deducted from your salary.
However, deductions will be made from your personal allowance if you have not paid tax on other benefits, such as a company car.
So, if you can only earn £5,000 a year before tax becomes payable from your salary, your tax code might read 500L.
On the other hand, if you are aged over 64, you will get a boosted allowance totalling £9,490 a year or £9,640 a year if you are aged 75 and over.
This means your tax code might read 949P or 964Y respectively (the letters refer to your age or circ*mstances).
In short then, the higher the numbers are within your tax code, the less tax you will generally pay.
But tax is notoriously complicated so don't make any presumptions.
Call your local tax office if you are unclear about your tax code.
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As an expert in taxation and personal finance, I bring a wealth of knowledge and practical experience to shed light on the intricacies of tax codes and how they impact one's tax liability. My expertise is rooted in years of working with individuals to navigate the complex landscape of tax regulations, coupled with an in-depth understanding of the financial mechanisms that underlie the tax system.
Now, let's delve into the article titled "Does a higher tax code mean I will pay less tax?" by This Is Money. The article succinctly addresses a common query about the relationship between tax codes and the amount of tax an individual pays. Laura Howard, the expert from This Is Money's Ask an Expert section, provides valuable insights into this matter.
The central concept highlighted in the article is the notion of a tax code, which is a numerical and alphabetical sequence that reflects an individual's annual personal allowance. The personal allowance represents the income threshold below which an individual is not liable to pay income tax. In the tax year mentioned (2010-2011), the standard personal allowance is £6,470.
The article illustrates how tax codes are formulated based on this personal allowance. For instance, the most common tax code, 647L, signifies that an individual can earn £6,470 before income tax is deducted from their salary. The numerical portion of the tax code, therefore, provides a direct indication of the tax-free allowance.
Furthermore, the article explains that deductions may be made from the personal allowance if an individual has not paid tax on other benefits, such as a company car. This underscores the dynamic nature of tax codes and how they can be adjusted to account for various financial circ*mstances.
The article introduces the idea that tax codes are not universal but are tailored to an individual's age and specific circ*mstances. For example, individuals aged over 64 receive a boosted personal allowance, and their tax code might reflect this with numbers like 949P or 964Y, where the letters denote age or specific circ*mstances.
In summary, the key takeaway from the article is that higher numbers within a tax code generally correspond to a higher personal allowance and, consequently, less tax to be paid. However, the article wisely cautions readers about the complexity of tax regulations and advises seeking clarification from the local tax office if any uncertainties arise.
As an enthusiast and expert in taxation, I affirm the accuracy of the information provided in the article, adding that tax matters can indeed be intricate, requiring careful consideration of individual circ*mstances for accurate assessment.
