Is your tax code setting you up for an unexpected tax liability?
You are PAYE and all your taxes are being paid at source, right? Our online accountants deal with clients all the time that end up with an unexpected tax liability when we complete their tax returns because they are on the wrong tax code. Tax codes are issued by HMRC based on information that they hold on record for you. Don’t be afraid to query them, they are not always correct!!!
SO, WHAT SHOULD YOUR TAX CODE BE?
Each year most individuals are entitled to a personal allowance. For the 2019/2020 tax year that is £12,500, which converts into a tax code of 1250L. If you are on this code HMRC assumed you have PAYE income only.
Reduced L Code
Many employees receive benefits from their companies that are not taken into account through the payroll. Instead the company will provide a P11d at the year end, with this information on. These forms are used for private medical costs, company cars, etc. If you have benefits outside of the payroll then your tax code should be amended to take these into account. For example, if you had taxable benefits of £2,000, this would leave you a personal allowance of £10,500, a tax code of 1050L.
An 0T is used for individuals who are not entitled to a personal allowance. If your income exceeds £100,000 you lose £1 of personal allowance for every £2 that you earn, so by the time you earn over £123,700 you will no longer receive a personal allowance.
If you have a company car, along with other benefits, you may find that your benefits exceed the personal allowance. In this case, you would have a code starting with a K. This means no personal allowance, and you owe a little more too.
EXPATS WATCH OUT !!!
If you are claiming the remittance basis, you will lose your personal allowance. This can come as a nasty shock at tax return time !
I think my tax code is wrong, what should I do?
If you think your tax code is wrong, don’t wait until the end of the year to find out, call HMRC on 0161 931 9070 (0300 200 3310), explain your circumstances and ask them to issue an amended tax code. If an amended return is issued, HMRC will send a copy to you and a copy to your employer. Your employer cannot update the code until they receive their copy. Find out more information via the gov UK website here.
For more tax advice, find more of our blogs here.
And if you need some help or assistance, check out all of our Online Accountancy Services to find the right service for you.