Martin Lewis explains ‘complex’ tax codes
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Tax codes are used by one’s employer or pension provider to work out how much Income Tax to take from their pay or pension. HM Revenue and Customs (HMRC) will tell them which code to use.
People can find their tax code by checking their Income Tax online service within their Personal Tax Account.
This is on the Government website and someone can find their tax code for the current year using this tool.
Britons can also view your tax code for:
- A previous tax year
- The next tax year
People can also find their tax code on their payslip or tax code letter from HMRC.
Tax codes are made up of several numbers and a letter.
The tax code 1257L is currently used for most people who have one job or pension.
HMRC will usually contact someone to explain how they worked out their individual tax code if their tax code changes.
The numbers in the tax code tell one’s employer or pension provider how much tax-free income they get in that tax year.
HMRC works out individual numbers based on their tax-free Personal Allowance and income they have not paid tax on (such as untaxed interest or part-time earnings).
They also consider the value of any benefits from the job (such as a company car).
Letters in your tax code refer to one’s situation and how it affects their Personal Allowance.
For example if someone has the letter L in their tax code, it means they are entitled to the standard tax-free Personal Allowance.
The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on.
Britons within the basic rate tax code are charged 20 percent.
Anyone earning between £12,571 to £50,270 will be charged 20 percent.
Between £50,271 to £150,000, people will be charged 40 percent.
Britons are urged to check their income tax if they are employed or get a pension to see:
- Their Personal Allowance and tax code
- How much tax they’ve paid in the current tax year
- How much they’re likely to pay for the rest of the year
If someone is on an emergency tax code their payslip will show:
- 1257 W1
- 1257 M1
- 1257 X
These mean they’ll pay tax on all their income above the basic Personal Allowance.
Britons may be put on an emergency tax code if HMRC does not get their 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 one’s tax code when they or their employer give them their correct details.
If the change in circumstances means they have not paid the right amount of tax, they’ll stay on the emergency tax code until they’ve paid the correct tax for the year.
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