Do you know what your tax code is?
For most people, their tax code is a meaningless string of digits. It is, however, very important, as it determines how much tax is deducted from your salary.
It isn’t unusual for a tax code to be incorrect – millions of mistakes have been identified by HM Revenue & Customs for the last few tax years. If your tax code is not correct, you could be paying the wrong amount of tax. You could either end up with an unexpected tax bill later on, or find that you are hundreds or even thousands of pounds out of pocket.
If you pay tax through the PAYE system then it could be time well spent for you to check what your tax code is, what it means, and to see if it is correct. You are more likely to have an error in your tax code if you:
- Have changed jobs;
- Have more than one source of income;
- Get employee benefits;
- Are over 65;
- Have just started your first job.
You can find your tax code on your payslips or P45, or on the coding notice you will have been sent by HMRC. You may have more than one tax code – e.g. if you have more than one job.
The HMRC website provides information on what your tax code means.
Once you have had a look at what your current tax code means, you should start to think about what your tax code should be. You will need to understand:
- What your personal allowance is (i.e. the amount you can earn before you start paying tax – the most common personal allowance for the 2015-16 tax year is £10,600)
- Any income you haven’t paid tax on (e.g. property income) and your taxable employment benefits (e.g. company car, medical insurance, etc.)
If you take the number you get from adding up items in 2. from the number you decided your personal allowance was in 1. and divide the result by 10, this should be the number in your tax code.
MoneySavingExpert.com has a helpful free tax code calculator which can help you to find out if you could be owed a tax rebate.
If you think you have found an error in your tax code then contact HMRC as soon as possible, give them the information you’ve used to figure out what your tax code should be, and ask them to change it.