We deal with clients all the time that end up with a tax liability that they were not expecting when we complete their tax returns. Tax codes are issued by HMRC based on information that they hold on record for you, but 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 2018/2019 tax year that is £11,850, which converts into a tax code of 1185L.
So, if you are on a tax code of 1185L it means that HMRC assume you have your PAYE income only.
Reduced L Code
Many employees receive benefits from their company, these are often collected through an amended tax code. If this is the case, then your tax code is likely to be a lot lower, so for example you have taxable benefits of £2,000. This would leave you a revised personal allowance of £9,850, and a tax code of 985L.
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.
If you see a code BR on your payslip, this means that you are being taxed basic rate (20%) on all income, this can happen if you have more than one job and they are in total below the 40% tax band.
A 0T code 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.
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.
Need your tax code checked? Drop us an email firstname.lastname@example.org