What to do if My tax code is Wrong and How do I claim refund?
Accurus Accountants

My Tax Code is Wrong and how do I Claim a refund?

Find out more about what a PAYE tax code is and how it’s worked out.

The PAYE system is how employees pay tax and every taxpayer is issued a tax code by HMRC. This is the key document to check to make sure that you don’t pay too much or too little income tax. It’s your responsibility to check it and to get it changed if it’s wrong.

As the Personal Allowance changes with each Budget, every tax year will usually bring you a new, corresponding tax code.

There are several other reasons that can affect your tax code which you should find out about, to help you only pay the tax you need to.

Sections

 What is a tax code?

The tax code issued by HMRC is made available to employees and to the taxpayer. 

Your tax code is important because it tells your employer how much income tax should be taken from your salary.

As an employed person you should understand and check your income tax code. The tax office places the responsibility on you to check your own code. If your tax code is later to be found wrong, you could miss out on a tax rebate, or be landed with an unforeseen tax bill.

How is my tax code worked out?

The code is worked out by first adding your personal allowance to any other allowances, and job expenses if you have any. Then any income on which you have not paid tax on is calculated. The balancing figure is then your personal allowance for the year. This figure is divided by 10 and becomes the number in your tax code. So a personal allowance of £10,800 would lead to a tax code of 1080. This tells the employer that the first £11,000 is tax free income. 

What does the letter in my tax code mean?

The meaning of the letters is significant for HMRC and your employers. Below are some of the suggested meaning:

L -you are younger than 65 and get the basic personal allowance

K – mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance.

M – Marriage Allowance: you have received a transfer of 10% of your partner’s allowance

N – Marriage Allowance: you transferred 10% of your personal allowance to your partner

OT – Your Personal allowance has been used up, or you’ve started a new job and your employer does not have the details to give you a tax code

BR – All your income from this job will be taxed at the basic rate (often used if you’ve got more than one job or pension)

DO – All your income from this job or pension is taxed at the higher rate (usually 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 if you’ve got more than one job or pension)

NT – You are not paying any tax on this income.

S – Your income or pension is being taxed in Scotland.

W – Your income or pension is being taxed using the rates in Wales.

Emergency tax codes – W1, M1, X

You may be put on an emergency tax code such as W1, M1 or X, if HMRC does not get your income details in time after a change in circumstances such as:

  • a new job
  • working for an employer after being self-employed
  • getting company benefits or the State Pension

Emergency tax codes are temporary. HMRC will usually update your tax code when you or your employer give them your correct details. If your change in circumstances means you have not paid the right amount of tax, you’ll stay on the emergency tax code until you’ve paid the correct tax for the year.

If your tax code has a ‘K’ at the beginning

Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance.

For most people, this happens when you’re:

  • paying tax you owe from a previous year through your wages or pension
  • getting benefits you need to pay tax on – these can be state benefits or company benefits

Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension – even if another organisation is paying the untaxed income to you. Employers and pension providers cannot take more than half your pre-tax wages or pension when using a K tax code.

What do I do if my tax code is wrong?

As soon as you realise there has been a mistake with your PAYE tax code you must get in touch with HMRC by email or phone (0300 200 3300).

You should provide all the necessary, accurate information so they can work out your correct tax code.

Gather together all these details before you contact HMRC:

  • Full name (including middle names)
  • Date of birth
  • Email address
  • National Insurance Number
  • Employer/pension provider tax reference number
  • Employee works number or pension number (private and/or company)
  • Estimate of total income for current tax year
  • Company benefits (e.g. health care, car fuel allowance)
  • Any other income (e.g. savings interest, property rental)
  • Weekly State Benefits or State Pension payments

Why does it matter?

If there is an error with your tax code, then you are paying the wrong amount of tax.

If you have paid too much then you can reclaim the overpayment, as long as you are within HMRC’s deadlines. If you have paid too little, then you need to repay HMRC. Either way, it is better to find out sooner rather than later.

Contact us now for a free informal discussion.

We are experts in preparing tax returns.   Please contact us at Accurus Accountants for an informal discussion.

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