Households are being urged to check their tax codes following a number of shake-ups to the system.
Every year the taxman sends out around 28 million codes to employees and pensioners – with the bulk landing around this time.
The codes calculate the tax that should be taken before you are paid.
Shake-up: Every year the taxman sends out around 28 million codes to employees and pensioners – with the bulk landing around this time
It is your obligation to tell HM Revenue and Customs (HMRC) if you are liable for tax. If you don’t, you face a penalty. And incorrect codes could result in you being charged too much or too little.
But the pandemic has thrown up the potential for complications and mistakes with taxpayer codes.
If you have claimed relief for working from home but have now returned to the office you will have to remove the tax break from your code.
Other errors may appear if you have worked more than one job or changed employers as HMRC may not have the correct information.
And other allowances might also have changed and may not now show up in your tax code.
Your savings interest can also cause a problem. If your bank has told HMRC how much it paid you in interest, and you have given it the same figure, the taxman may think you have received twice the interest.
This means your code could be adjusted to clawback tax on the interest above the £1,000 personal savings allowance.
Your code is a series of numbers and letters, for example 1257L or K497.
If you put a ‘£’ sign in front of the number and a zero at the end, you’ll have the amount HMRC deems you can earn a year before you pay tax. For example, 1257 becomes £12,570 the personal allowance for the next tax year.
It then lists things that will raise it — such as tax-deductible job expenses, the personal savings allowance or the marriage allowance. The total is then cut back by things which will reduce it such as your state pension, private healthcare, car benefits or tax you owe from previous years.
If, for example, you have a state pension of £9,000 you end up with a personal allowance of £3,500 (£12,500-£9,000) and the tax code 350L which is sent to your private pension provider.
It will tax all your pension except the first £3,500.
If you do not receive a letter and have an online tax account at HMRC you can access it under ‘Tax Code’. You can also find it on your payslip or P60.
You can change your tax code through your online account at gov.uk/personal-tax-account.
Or you can phone on 0300 200 3300 with your National Insurance number to hand. Or write to Pay As You Earn and Self-Assessment, HM Revenue and Customs, BX9 1AS.