TAXPAYERS should look out for a code on their payslips to check if they are owed hundreds of pounds in cash.
If you are on the wrong tax code you could be paying more than you need to and you could be owed some money back.
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The tax code on your payslip tells you how much you should be paying to HMRC each month.
If you do not check your details you could be on the wrong code and not realise you are paying over the odds in tax.
Equally, the same can happen in reverse and you might end up underpaying and owing tax back.
This is why it is important to be vigilant when it comes to staying ontop of your tax code as it is your responsibility to let HMRC know if anything is wrong.
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It is easy to spot and is usually a mixture of letters and numbers – the most common tax code is 1257L.
The combination of letters and numbers indicates exactly how much income tax you pay on earnings, so you must be on the right one.
If you do notice that your tax code is wrong, you can claim back any overpaid tax for the last four tax years.
Here we explain how to check your tax code and what to do if you think yours is wrong.
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What are the different tax codes and what do they mean?
As we previously mentioned your tax code is made up of different letters and numbers, here is what each of the letters mean:
- L – You’re entitled to the standard tax-free Personal Allowance
- M – Marriage Allowance: you’ve received a transfer of 10% of your partner’s personal allowance (£1,260)
- N – Marriage Allowance: you’ve transferred 10 per cent of your personal allowance to your partner
- S – Your income or pension is taxed using the rates in Scotland
- T – Your tax code includes other calculations to work out your personal allowance, for example, it’s been reduced because your estimated annual income is more than £100,000
- 0T – Your personal allowance (which is currently £12,570) has been used up, or you’ve started a new job and your employer doesn’t have the details they need to give you a tax code
- BR – All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension)
- D0 – All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension)
- D1 – All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension)
- NT – You’re not paying any tax on this income
- Tax codes starting with K mean you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance
If you change jobs it is worth checking your details and making sure you are on the correct code.
It could be that HMRC has not received any information about your change of circumstances and therefore will not update anything.
How can I check I am on the right tax code?
You can check your tax code on your personal tax account online, or by looking at any payslip or via the HMRC app.
If you have been sent one you can also check it on a “Tax Code Notice” letter from HMRC.
To log in and check your tax code you will need your Government Gateway ID and password.
But if you don’t have this you can use your National Insurance number or postcode and two of the following:
- A valid UK passport
- A UK photocard driving licence issued by the DVLA (or DVA in Northern Ireland)
- A payslip from the last three months or a P60 from your employer for the last tax year
- Details of a tax credit claim if you have made one
- Details from a self assessment tax return (in the last two years) if you made one
- Information held on your credit record if you have one (such as loans, credit cards or mortgages)
What if my code is wrong?
If you think your tax code is wrong you will need to contact HMRC to tell them.
You can contact them by either phoning 0300 200 3300, you can also send them a letter.
If you are sending a letter you can address it to, Pay as You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.
If you are on the wrong tax code and have been paying too much, HMRC will change it so that you are paying the correct amount in the future.
You should also get reimbursed for any overpayments you have made.
If it is found that you have underpaid, and owe HMRC, you will usually have to pay the money back over 12 months.
However, this will only apply if you are earning enough income over the Personal Allowance, which is currently £12,570, and owe less than £3,000 back.
What if I forget to check my tax code?
HMRC could also get in touch with you to let you know you’re owed a tax rebate and they will do this via a P800 letter or a simple assessment letter in the post.
But as before, a P800 might tell you if you’ve not paid enough tax and have to pay it back.
A P800 letter will tell you if you can claim online through the government’s website.
If you claim online the money will be sent to your bank account within five days.
You can also claim your refund through the HMRC app.
If your P800 letter tells you you will be paid your tax rebate via cheque in the post, you should receive it within 14 days of the date on your letter.
If you’re owed tax from more than one year, you’ll get a single cheque for the entire amount.
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Meanwhile, the taxman has been accused of cashing in on struggling Brits who can’t pay their tax bill on time.
Also, we have eight tips to fill in your self-assessment tax return and avoid £100 fine.
