What are Tax Codes?

Tax codes are used by employers to calculate the amount of tax (PAYE) that needs to be deducted from your income. This code, which is shown on your payslip, is made up of a series of numbers and usually one letter and corresponds to how much income you may earn before any tax is liable.

If your tax code is a number followed by one letter, such as L or P then you multiply the number by ten to establish your tax free income. So a 522L tax code indicates a tax free amount of £5,220.

A tax code of BR usually indicates that this is your second job, your tax free allowance is used up by your first job, and you have no tax free allowance in this job.

A tax code which begins with the letter K shows that your deductions exceed the total annual personal tax allowance.

For a more detailed explanation of how tax codes operate, visit the Government information website at http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015472

How do I know if my Tax Code is correct?

When you joined i4, you may have been sent a P46 Form which asked a few simple questions about your job situation. This form would have been submitted to HMRC and they have determined what tax code to use and notified both you and i4. If you didn’t receive a P46, then you would have supplied us with a P45 from your previous employment which has your tax code on it.

HMRC sends tax notices to each tax payer, usually around February each year. In addition, you will find the tax code that we use on each of your payslips.

If your tax affairs are simple, it should be easy for you to check whether your tax code is correct. But don’t take it for granted that it is correct.

If your tax affairs are more complex, where for example you have more than one source of income, then you may need to speak to an accountant. We have established an excellent working relationship with an accountancy firm, and will refer you with the greatest of pleasure.

What should you do if you think your Tax Code is wrong?

The best thing to do is contact your tax office directly. There will be an address and phone number on your notice of tax coding. Keep your tax coding notices in a safe place.

If you think that HMRC’s calculations are wrong, challenge them. Send in writing a request for your tax code to be reviewed, together with your reasons and your own calculations, and keep copies of all correspondence.

Self-assessments

Self-assessment taxpayers usually have until December 30 to file their tax returns online if they want the tax they owe to be collected through a change in their tax code. This is possible where the total tax owed is less than £2,000. If you miss this deadline and have received your tax return before October 31, then you are required to complete and return the form by January 31 together with any tax that you owe.

Remember that filing your tax return online is simple and fast, but you must allow time to register with HMRC and receive your activation code.