By James Nadal | December 18, 2020 | 6 minutes of reading
We’ve all been there at one time or another. Whether it’s because you’ve recently changed jobs, your personal allowance has changed, or your marital status has changed, it’s inevitable that you’ll need to change your tax code at some point.
You may also need to check your tax code to make sure it is correct and up to date. Even if you think you are on the correct tax code, you may be overpaying or underpaying HMRC by a significant amount.
Don’t worry; It’s a lot easier than you think. This guide will teach you why a tax code is important, how to verify that it is correct, and how to change it if it is not.
What is a tax code?
Employers and pension providers use your tax code to determine how much income tax to withhold from your salary or pension.
All full-time or part-time employees and those with a private pension have a tax code. Examples of earlier codes include 1185L and 1150L. Although at first glance it may look like a random string of letters and numbers, it is key information that affects your finances.
Why are tax codes important?
Employers calculate how much tax should be deducted from your salary or pension before hitting your bank account. HM Revenue and Customs (HMRC) tells them which code to use to collect the correct amount of tax, so this is an important part of the process.
If for any reason there is an error in your tax code, this may result in inaccurate payments to HMRC. This can add up to hundreds of dollars, so it’s important to check that you’re on the correct tax code.
People receiving only a state pension and the self-employed do not have a tax code and must instead complete and lodge a self-assessment return to report their tax.
How to check your tax code
There is an easy way to check your tax code on the web. Visit the Check your income tax page on the HMRC website.
It is important to verify that this is correct. Otherwise, you may have to file a refund request or, even worse, find money you didn’t think you’d have to pay.
What tax code should I be on?
You may be wondering, “How do I find out my tax code?” » Fortunately, it’s a simple process. Use HMRC’s online checker tool to find out which tax code you should use.
You will also be able to see an estimate of the amount of tax you should pay over the entire year.
Why has my tax code changed?
The most common reason for a tax code change is if your tax-free income (personal allowance) increases or decreases according to HMRC. This may be because they have started or stopped receiving a taxable benefit such as a company car.
Getting married or moving can also be the cause. You can get an emergency tax code for a second job. These are meant to be temporary, but it’s still important to check.
Your employer should receive an email alert if your tax code changes. The HMRC website will also be able to tell you if your tax code has changed, how your tax code is drawn up and how much tax you are likely to pay.
You can also notify HMRC directly of a change affecting your tax code via the same checker tool.
Change your tax code
If your tax code is incorrect, you will need to change it to avoid paying the wrong amount to HMRC. There are three ways to do this: online, over the phone or with the help of professional accounting services.
Change tax code online
You may need to contact HMRC or change your tax code online if you think it is wrong. Visit the Income Tax: General Inquiries page or notify them of any changes using the Income Tax Checker tool.
Change tax code by phone
If you prefer to change your tax code over the phone, you can call the government’s Income Tax: General Inquiries hotline on 0300 200 3300.
Change the tax code via a professional
An accountant can help you with your tax requirements, including your tax code.
Many accountants rely on our tax and accounting software to manage their clients’ tax requirements. It’s a flexible cloud solution that can handle all the heavy lifting for you.