Navigating the complexities of tax codes can often feel overwhelming for many UK employees. Your tax code dictates how much income tax is deducted from your salary, and even the smallest error could result in you paying too much or too little. This imbalance could lead to either unexpected tax bills or potential refunds from HM Revenue and Customs (HMRC).
A tax code is a combination of letters and numbers used by employers or pension providers to calculate the amount of income tax deducted from an individual’s earnings. Ensuring your tax code is accurate is essential for effective financial management, as it directly affects your take-home pay.
Understanding Tax Codes and Their Importance
The most common tax code in the UK is 1257L, which is based on the current Personal Tax Allowance of £12,570. This means that the first £12,570 of your earnings are tax-free. Any amount you earn over this threshold is subject to income tax.
However, your tax code might not always be correct. If it’s incorrect, you could either overpay, leading to a potential refund, or underpay, leaving you with an unexpected tax bill later on. Therefore, regularly reviewing your tax code is essential to avoid unpleasant surprises.
Sophie Rhone, a workplace expert from Digital PR Lab, emphasises the importance of staying on top of tax code changes. “Keeping an eye on your tax code and understanding its implications is essential for managing your finances effectively,” she said. “Mistakes can happen, but by staying proactive and informed, you can catch errors early, avoid unexpected bills, and ensure you’re not paying more than you should.”
How to Check Your Tax Code
To check your tax code, you can refer to your most recent payslip, or if you’ve recently left a job, it will be on your P45. If you want to review your tax code online, you can visit the GOV.UK website at gov.uk/tax-codes. However, you’ll need to have a Government Gateway ID to access the information online.
The letters in a tax code correspond to specific personal situations that affect an individual’s tax allowance. Below are some of the most common tax code letters and their meanings:
- L: Entitled to the standard tax-free Personal Allowance.
- S: Main residence is in Scotland.
- BR/SBR: Employed in a second job or receiving pension income.
- M: Married or in a civil partnership, with a spouse transferring some of their Personal Allowance.
- N: Transferred some Personal Allowance to a spouse or civil partner.
- T: HMRC needs to review specific items with the employee before finalising the tax code.
How to Claim Back Overpaid Tax
If you think you’ve been assigned the wrong tax code, it’s important to act quickly. To rectify an incorrect tax code, you can contact HMRC by calling their helpline at 0300 200 3300. Additionally, HMRC offers a live chat service on their website, allowing you to speak with an advisor online.
Once you notify HMRC of the mistake, they will contact your employer to update the tax code. Any money you’ve overpaid in tax will typically be refunded in your next payslip. For those who’ve overpaid for a longer period, HMRC allows individuals to claim refunds for up to four previous tax years.
The Workers Union Says…
“For employees across the UK, ensuring that their tax code is accurate is crucial to avoid overpayment and secure any possible refunds. With tax codes often changing due to individual circumstances, such as moving between jobs, receiving a pension, or changes in marital status, it’s wise to check your tax code regularly.
By staying informed and proactive, you can take control of your financial wellbeing, minimise tax-related stress, and potentially reclaim funds owed to you.”
