Taxpayers are encouraged to check they are on the right tax code. HMRC recently shared some guidance about when you may see a change in your tax code.
It is worth checking you are on the correct tax code, as this is used by your employer or your pension provider to calculate how much income tax to deduct from your payments. If you are on the wrong tax code, you could either pay too much tax or not enough.
You can find your tax code in several ways, including using a tool on the Government website. You can also view your tax code through the HMRC app, on a recent payslip or on a ‘Tax Code Notice’ letter from HMRC, if you have received one.
A taxpayer asked HMRC about their tax code as it had recently changed. Messaging the group on social media, the person said: “Today I noticed a difference in my tax code for the last financial year. In my previous job it was 1257L, but after joining my current organisation it changed to 1148L. Can anyone advise why this happens?”
In response, HMRC explained why this could have happened. The authority said: “That can happen if you change jobs, and the pay period of the last pay from the first overlaps with the pay period of the first pay from the second.”
A tax code ending in ‘L’ means that you are entitled to the personal allowance, which allows you to earn up to £12,570 a year without paying income tax. In England, Wales and Northern Ireland, your earnings from £12,570 to £50,270 are taxied at 20 percent.
Your earnings above this amount are taxed at the higher rate for income, which is 40 percent. Your income above £125,140 is levied at the additional rate, of 45 percent.
However, once your income moves above £100,000, you start to lose your personal allowance. You lose £1 of this for each £2 you earn above £100,000, meaning you get no allowance once your income reaches £125,140.
The income tax system is different in Scotland. You can view more information about this on the Government website.
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