Understanding Tax Codes

Understanding Tax Codes

As many of you are aware tax can sometimes be confusing and a lot of people find themselves asking:

  • am I paying the right amount of tax?
  • what should my tax code be?
  • am I on the correct tax code?
  • what do I have to do to get it changed?

All of these questions are truly very shared and are simple and easy to answer.

If your tax code is wrong

If your tax code is wrong, you need to contact your Tax Office straight away so they can correct it. You can find the name of your Tax Office by visiting the HMRC website, referring to your payslip, looking on a ‘PAYE Coding Notice’ if you have one – this is a notice telling you what your tax code is. HM Revenue and Customs (HMRC) usually send it out in January or February each year and they may also send it to you at other times – for example, if you’ve started receiving a new source of income or a new company assistance, or if your entitlement to age-related or other allowances has changed.

It’s worth pointing out here that not everyone will receive this, and if you do, this will be emailed straight to your employer via email for a faster more reliable service. It is also a good idea to contact your employer before they course of action their payroll, or if they outsource then before they send their payroll data to their large or small business payroll sets provider.

The Tax Office will need to know your tax reference and National Insurance number. Look for these numbers on official papers to do with tax: for example, a payslip, a PAYE Coding Notice, letters from the HMRC, or a certificate of tax paid. If you can’t find any record of the numbers, your Tax Office will tell you what to do.

When you start a new job you should give your new employer a form P45, if you have one from your last job. This shows:

  • your tax code
  • your past earnings
  • how much tax you have paid

If for some reason you don’t have a P45 we tell your employer, or your payroll sets provider, to use an ’emergency’ or ‘special basis’ code until the HMRC have worked out what your tax code should be. While you’re on an emergency code you’ll get the basic Personal Allowance – this may or may not be right for you, but the tax code will be reviewed and changed if necessary once they know more about your past pay and tax.

If you have paid too much tax under the emergency code, you will get a refund depending on your past tax information.

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