Have you been given the wrong tax code?

By TONY HAZELL FOR THE DAILY MAIL
Updated:

 

Millions of workers and pensioners could pay too much tax this year after HM Revenue & Customs sent out incorrect tax codes. So how can you tell if yours is wrong?

cartoon worried about tax

Error: Check to make sure you've received the correct tax code

Your tax code contains two pieces of information: a number that shows how much money you can earn before paying tax and a letter that shows your tax status.

For a basic rate taxpayer with no complications, it would be 647L. Revenue & Customs removes the last digit from the number, so this code means you can earn £6,475 before being taxed.

The most common letter on a tax code is 'L', which means that you are eligible for the basic personal allowance.

The letter 'T' means a temporary code.

If you're aged between 65 and 74 and get the full personal allowance (£9,490), you get a 'P' code; those aged 75 or over have a 'Y' code if they get the full personal allowance of £9,640.

If your allowances are less than your deductions, you'll get a 'K' code. When you receive your coding notice, it should explain all the details that affect your code, such as deductions for a company car, medical insurance and other perks. See cccfcalculator.hmrc.gov.uk for details of tax deductions for company cars and petrol cards.

Your employer's personnel department should be able to tell you how much is deducted for any other perks, such as medical insurance. If you are a pensioner, there will be a deduction shown for the state pension because this is taxable. Pensioners' tax codes can be complicated because pensions are taxed at source by former employers. If you need help, contact TaxHelp For Older People on 0845 601 3321. If you have perks or a pension that is not shown on the coding notice, it is likely your tax code is wrong.

If any items you don't have are shown on your coding notice, it will also be wrong. There are also tax allowances for married couples aged over 75, which will increase your tax code. These are shown in a complicated fashion. First, you are given an extra tax allowance, then some is taken away to reflect the fact that tax relief is only given at 10%.

Higher rate taxpayers should see their tax allowance increased to take account of payments into a personal pension. These have basic rate tax added to the payment automatically, but higher rate taxpayers should receive extra relief. If you've made these payments and included them on your tax form, but they do not appear on your coding notice, then your code will be wrong.

You need to tell your tax office as soon as possible, otherwise your April pay packet could have too much tax deducted. A spokesman for HM Revenue & Customs says the problem with incorrect codes comes from a new system used for calculating PAYE tax and National Insurance. Those at particular risk of getting incorrect codes have changed jobs in the past few years.

You can check your tax code at hmrc.gov.uk/incometax or you can visit a tax inquiry centre.

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