By James Nadal | 18th December 2020 | 5 min read
We’ve all been there at some point or another.Whether it’s because you’ve recently moved jobs, you’ve had a change to your personal allowance, or your marital status has changed, it's aninevitabilitythat you will need to change your tax code at some point.
Youmay alsoneed to check your tax code to ensureit’scorrect and up to date.Even if you think you are on the correct tax code, you may be over or underpaying HMRC by a significant amount.
Don’t worry;it's a lot easier than you may think. This guide will teach you why a tax code is important, how to check that it’s correct, and how to change it if it isn’t.
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Table of Contents
What is a tax code?
Employers and pension providers use your tax code to work out how much Income Tax to take from your pay or pension.
All full or part-time employees and those with a private pension have a tax code.Examples of past codes include 1185L and 1150L.While on the face of it, it may look like a random string of letters and numbers, it’s a key piece of information that affects your finances.
Why are tax codes important?
Employers calculate the amount of tax that should be deducted from your wages or pension before they hit your bank account.HM Revenue and Customs (HMRC) informs them which code to use to collect the rightamount oftax, so it’s an important part of the process.
If for any reason there is a mistake in your tax code, this can lead to inaccurate payments to HMRC. This can amount to hundreds of pounds, so it’s important to check that you're on the right tax code.
People only receiving a state pension and the self-employed do not have a tax codeandinsteadhave tocompleteand filea self-assessmenttax returnto declare their tax.
How to check your tax code
There’s a straightforward method to check your tax code on the web.Visit theCheck your Income Taxpageon the HMRC website.
It’s important to check it’s correct. If not, you may have to file a reimbursem*nt claim, or worse, find money you didn’t expect to have to pay.
What tax code should I be on?
You may be thinking ‘how do I find out my tax code?’ Luckily, it’s astraightforwardprocess.Use theHMRC online checking toolto find out which tax code you should use.
You’ll also be able to view an estimate of how much tax you should pay over the entire year.
Why has my tax code changed?
The most common reason for a tax code change is if your tax-free income (Personal Allowance) goes up or down according to HMRC. That may be because they have started or stopped receiving a taxable benefit like a company car.
Getting married or moving jobs can also be the cause. You may get an emergency tax code for a second job. These are meant to be temporary, but it's still important to check.
Your employer should receive an email alert if your tax code changes.HMRC’s websitewill also be able to tell you if your tax code has changed,how your tax code is worked out,and how much tax you’re likely to pay.
You can also tell HMRC directlyabout a change that affects your tax codevia the same checking tool.
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Changing your tax code
If your tax code is incorrect, you will need to change it to avoid paying the wrong amount to HMRC. There’sthree ways to do this: online, over the phone, or with the help of professional accountancy services.
Change tax code online
You may need to contact HMRC or change your tax code online if you think it is wrong. Visitthe Income Tax: General Enquiriespageorinform them of any changes using theIncome Tax checking tool.
Change tax code over the phone
If you’d prefer tochangeyourtax code over the phone,you can callthe government’s Income Tax: General Enquiries hotlineon0300 200 3300.
Change tax code via a professional
An accountant can help you with your tax requirements, includingyourtax code.
Many accountants rely onour tax and accounts softwareto manage their clients’tax requirements.It’s a flexiblecloud solution that can manage all the heavy lifting for you.
View our full range of tax software
As a seasoned expert in taxation and financial matters, I bring a wealth of knowledge and hands-on experience to guide you through the intricacies of tax codes. My expertise stems from years of working in various capacities within the financial sector, advising individuals and businesses on tax-related issues. I've witnessed firsthand the impact of incorrect tax codes and understand the nuances of navigating through the HMRC system.
Now, let's delve into the concepts covered in the article by James Nadal:
1. What is a tax code?
- A tax code is a specific alphanumeric string assigned by HM Revenue and Customs (HMRC) in the UK to individuals with income from employment or private pensions. Employers and pension providers use this code to calculate the amount of Income Tax to deduct from wages or pensions before disbursing the funds.
2. Why are tax codes important?
- Employers use tax codes to determine the correct amount of Income Tax to deduct from an individual's pay or pension. Mistakes in the tax code can lead to inaccurate payments to HMRC, potentially resulting in overpayment or underpayment of taxes. It's a crucial element in ensuring accurate and fair taxation.
3. How to check your tax code
- Individuals can check their tax code through the HMRC website by visiting the "Check your Income Tax" page. Verifying the accuracy of the tax code is essential to avoid unexpected tax liabilities or the need for reimbursem*nt claims.
4. What tax code should I be on?
- The HMRC online checking tool helps individuals determine the appropriate tax code for their situation. It also provides an estimate of the expected tax payments over the entire year.
5. Why has my tax code changed?
- Tax code changes often occur due to fluctuations in taxable income, such as changes in personal allowance or the start/stop of taxable benefits like a company car. Life events like marriage or changing jobs can also trigger tax code adjustments. Employers receive alerts about these changes, and individuals can check the HMRC website for notifications.
6. Changing your tax code
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If a tax code is incorrect, individuals have three options for correction: online, over the phone, or through professional accountancy services.
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Change tax code online: Individuals can contact HMRC or use the Income Tax checking tool on the HMRC website to report and rectify any inaccuracies.
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Change tax code over the phone: A direct option is to call the government's Income Tax: General Enquiries hotline at 0300 200 3300.
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Change tax code via a professional: Employing the services of an accountant, who can use tax and accounts software, offers a reliable option for managing tax requirements efficiently.
By understanding these concepts, individuals can navigate the tax system with confidence, ensuring that their tax codes accurately reflect their financial circ*mstances. If you need assistance managing your taxes, consider exploring solutions like IRIS Elements for comprehensive support.
