Check Your Tax Code! You May Have Overpaid Tax

Oh, tax codes! How I used to detest them after I first began coaching to be a tax advisor. They are often fiddly little issues. Should you get them incorrect, the implications will be fairly extreme. Your consumer would possibly find yourself overpaying or, even worse, underpaying tax and on the finish of the yr be left with a big tax invoice. As you’ll be able to most likely think about, that consumer will not be a contented bunny.

I’m a trainee tax advisor working in a small Start a service bureau consultancy close to London. Having arrived in London from Germany 8 years in the past for a niche yr journey, I couldn’t have imagined that in the future I might find yourself turning into a UK tax advisor. These days, I can’t think about a greater job for myself.

For many of us, having an incorrect tax code implies that we find yourself overpaying tax. You’ve most likely heard or been warned of the hazards of getting an emergency tax code. Guess what? The emergency tax code – 1000L in 2014/15 – is the code most of us have to make sure that we pay the correct quantity of tax.

A tax code tells your employer how a lot cash you’ll be able to earn tax free every year in order that they will deduct the correct quantity of tax out of your pay. For many of us, this can solely be our primary private allowance which is £10,000 for the 2014/15 tax yr. The tax code itself is your tax free earnings divided by ten and adopted by a letter (principally “L”) – therefore the tax code 1000L. Except you have got extra earnings or untaxed earnings, this code will be certain that you get your full private allowance and that roughly the correct quantity of tax is deducted out of your pay.

So what are the “harmful codes” to be careful for? Principally, any code that’s not 1000L requires a correct test. Under I’ve listed just a few widespread ones:

1000L W1/ M1

W1/ M1 means week 1/ month 1. Usually, your tax place is recalculated each time you might be paid making an allowance for your whole earnings for the yr to make sure that you obtain your full private allowance over the course of a tax yr. Nonetheless, in case your employer makes use of a W1/ M1 code, they don’t have sufficient details about your earnings earlier than you began your job with a purpose to calculate your private allowance for the remaining tax yr. As a substitute, you might be given 1/12 or 1/52 of your private allowance (relying whether or not you might be paid month-to-month or weekly). Nonetheless, this may increasingly not provide you with your full private allowance if, for instance, you had a decrease or no earnings earlier than you began your job and you might find yourself overpaying tax.

The W1/ M1 code is supposed to be a short lived one and must be amended by HMRC. Nonetheless, if this doesn’t occur, you might need to name HMRC on the taxes helpline (tel: 0300 200 3300) and ask for it to be amended.


In case your tax code is 0T, alarm bells ought to ring. Your employer will use this tax code if you don’t full a starter declaration earlier than you begin your job.

If you start a brand new job, in sure circumstances your employer might ask you to make a starter declaration to seek out out whether or not you had any employment or advantages earnings earlier than you began your job or whether or not you have got one other job.

The 0T code is not going to provide you with any private allowance and deduct tax on the respective tax charges. If in case you have such a code, you’ll nearly inevitably be overpaying tax and will ring HMRC to request for it to be amended as quickly as potential.

BR, D0 or D1

You’re most probably to come back throughout a BR code. This code deducts tax at a charge of 20% (D0 deducts tax at 40% and D1 at 45%). If in case you have a second job, this job is prone to have a BR code with the 1000L code being allotted in opposition to your most important job. Nonetheless, in the event you earn lower than £10,000 per yr in your most important job, the 1000L code is not going to provide you with your full private allowance. The unused a part of the allowance must be transferred to your second tax code as in any other case you find yourself overpaying tax.

Different codes

Generally tax codes will be extra sophisticated, for instance in case you have different untaxed earnings, are entitled to a better private allowance, obtain advantages out of your employer (e.g. non-public medical insurance coverage or an organization automotive) or incur job bills. Your tax code should comprise all of your untaxed earnings and allowances for the correct quantity of tax to be deducted. In case you are uncertain whether or not your tax code is right, you might need to get recommendation from HMRC on the taxes helpline.

The place can you discover your tax code?

You might have acquired a tax coding discover from HMRC previous to the start of the tax yr. Nonetheless, not everyone will get such a discover. Should you lately stopped working and acquired a type P45 out of your employer, you will discover your tax code on that type. (An employer should present a P45 to any worker that stopped working for them). Alternatively, you’ll be able to ring up the HMRC taxes helpline to seek out out.

Should you had a incorrect tax code prior to now

The usual tax codes prior to now 4 tax years had been as follows:

2010/11: 647L
2011/12: 747L
2012/13: 810L
2013/14: 944L

In case you are involved that you could have overpaid tax prior to now resulting from an incorrect tax code, you may make a declare for compensation of tax for as much as the previous 4 years.

It has been a yr since I began working in tax and I am nonetheless not an enormous fan of these tax codes. Nonetheless, fortunately for many of us, our tax codes are prone to be fairly straight ahead. Nonetheless, they’re nicely value checking as, if they’re incorrect, you might find yourself paying the incorrect quantity of tax. And who is aware of, you might uncover that you’ve overpaid tax and may declare a refund.

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