Page 38 Daily Mail, Wednesday, March 4, 2020
38 MoneyMail
As millions of (often baffling) letters are sent out..
owed £1,631.80 for the tax year ending
April 2018 and £1,251.24 for the tax
year the following April.
Problems with tax codes most often
arise if you have several jobs or have
changed employer during the year.
If you have savings interest from
banks, building societies or National
Savings you can also get caught.
Joanne Walker, technical officer at
the Low Income TaxReform Group,
says: ‘It is important to check your
tax code because it is fairly common
for them to be wrong. Your code is
only as good as the information
HMRC has on you.’
But you, not HMRC, are responsible
if it is wrong, even though it is the
taxman’s mistake.
The code is made up of several
numbers followed by one, two or
three letters. To break it, you need to
know what these numbers and let-
ters mean.
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.
Most people in the UK are entitled
to a personal allowance — the amount
you can earn without being taxed.
It starts at £12,500 for this tax year.
If you keep the full allowance, your
code number will be 1250.
The number is followed by a letter.
The most common is L, and means
you are entitled to the personal
allowance and no more.
If you work and have a pension, you
may have a normal code on your job
and a BR code on your pension.T
HIS means you have used
up your personal allow-
ance with your job and
pay basic rate (BR) tax on
the whole of your pension.
If you have an OT code, get it
changed as soon as possible. It
means all your income is taxed. This
could happen on changing jobs if
your employer does not have enough
details to give you a tax code.
The most common code is 1250L
but plenty of allowances can change
it. HMRC’s usual starting point is
1250 which it alters according to
your circumstances.
It lists things that will raise it —
such as tax-deductible job expenses,
p e r s o n a l s a v i n g s a l l o w a n c e o r
marriage allowance. These are then
totted up. The total is then cut back
by things which will reduce it such as
your state pension 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.
You could also run into problems
and end up with the wrong code if
you have more than one job. Each
employer might not know what the
others are doing tax-wise so HMRC
will not have correct information.
Or when you switch jobs the cor-
rect information on what you haveearned so far in the tax year, how
much tax you have paid to date has
not reached your new employer — or
your allowances might change and
not show up in your tax code.
Savings income can also cause
problems. You can earn £1,000 as a
basic rate taxpayer in savings inter-
est from ordinary accounts outside
an Isa before you have to pay tax.
Higher rate tax payers get £500.
If you earn more, your code will be
adjusted. But your code shouldn’t
change if your interest is below this.
In some cases, savers have paid too
much tax. For example if your sav-
ings provider tells HMRC it has paid
you £750 interest and you also give it
the same figure, it can end up that
the figures are added together so it
looks as if you received £1,500 inter-
est and you pay too much tax.
You will also see your code adjusted
if you earn more than £2,000 a year
from dividends from shares in funds
held outside an Isa.
If you think your code is wrong call
HMRC on 0300 200 3300. If you have
a personal tax account with HMRC,
go to http://www.gov.uk/personal-tax-
account to tell it there’s a mistake.
[email protected]E
VERY year the taxman sends
out around 28 million tax
codes to employees and pen-
sioners — with the bulk land-
ing around this time of year.
The code tells you how much you can earn
before you have to pay any income tax. Your
tax code notice might seem dull but if the
numbers and letters are wrong it can mean
you pay too much, or too little, tax.
So it is vital you check it now before you end
up hundreds of pounds out of pocket — orwith a nasty tax bill. One Money Mail reader
now has to pay back £90 a month for nearly
three years after a mix-up with her tax code
means she owes HMRC nearly £3,000.
She fell foul of the system when she started a
second job as a teaching assistant in a local
school — and received the full personal
allowance twice.
The taxman told her in December that sheYour guide to cracking
those HMRC tax codes
By Sylvia Morris
TaxMan’sjaRgon
ExplainEd
BR: You have a second job or
pension that is taxed at 20 pc.
C: You pay the rate of income
tax in Wales.D0: Income from this source is
taxed at the higher rate: 40 pc.D1: Income from this source is
taxed at 45 pc.L : Yo u a re e nt it le d t o t he
personal tax-free allowance of
£12,500 and no more.K: You have a negative amount
of personal allowance, possibly
because of other income, taxa-
ble benefits from your employer
and money you owe HMRC.M: Your spouse or civil partner
has transferred 10 pc of his or
her £12,500 (£1,250) personal
allowance to you, known as the
Marriage Allowance, reducing
your tax bill by £250.
N: The other way round — you
have transferred 10 pc of your
allowance to your partner.NT: You pay no tax on any of
your income.0T: All your income is taxed.
You could get this if you have
change jobs and have not had a
P45 showing how much tax you
have paid so far this year.S: Your income or pension is
taxed at the Scottish rate.T: Your tax code requires other
calculations to work out your
current personal allowance.W1 oR M1: Emergency tax code.
HMRC needs more information.