It is every employee’s responsibility to check their tax code and to advise HMRC if it is incorrect. However many of us just assume that the tax code we have will be correct and do not think to verify it each year.
HMRC send out your new tax code before the January 31st tax return deadline. This means that the information they are using to calculate your tax code may not be fully accurate, making it all the more important for you to ensure that it is right.
Understanding your Tax Code
Here are some easy steps to check whether you have been assigned the correct tax code and to ensure that you understand it fully.
The full breakdown of how your PAYE is set is shown on your coding notice. A copy should have been sent out directly but can also be requested from HMRC or found on your Government Gateway account.
Once a copy of the coding notice has been obtained look at the information contained in it and check the basics. Does it have the correct name address and National Insurance Number? Is your employers name correct? If not, you need to get it corrected.
Then look at the letters in your tax code. Each has a specific meaning.
L - is for anyone getting the basic personal allowance.
P - represents those aged between 65 and 74 getting the full personal allowance.
Y - is for those 75 or over getting the full personal allowance.
V - is used for those aged between 65 and 74, eligible for the full personal allowance
and the married couple's allowance who just pay basic rate tax.
K - means you get no tax-free pay or owe money to HMRC.
T - means HMRC needs further information so cannot allocate another code.
BR - shows that you are taxed at the basic rate.
DO - means you are taxed at the higher rate without allowances (usually used for a second job or a pension).
NT - means that no tax is to be taken from your income or pension.
For those with a code using any of the first six letters set out above, the code will be made up of two parts. One side will set out any allowances being given and the other side will set out any amounts being deducted from those allowances.
The allowances will include any personal allowance being given, which is reduced or not available for anyone earning over £100,000. It may also include an allowance for things like gift aid donations and pensions which will often be based on information available from earlier years. It is important to check all these items are accurate.
The expenses will include additional items of income such as interest or dividends or non-cash employment benefits such as private medical, which don’t go through the monthly payroll. Again these will be based on information for previous years and will need to be checked carefully.
For further assistance on investigating your tax code, please get in contact with our friendly team who will be happy to help.