HMRC, or HM Revenue and Customs as it is more formally known, collects taxes from millions of people each year. As part of its work, HMRC issues tax codes to provide Britons with more insight into their financial circumstances. Tax codes are used by a person’s employer or pension provider in order to work out how much Income Tax will need to be taken from their pay or their pension.
This is what is known as a Personal Allowance – the amount Britons can earn or receive before tax has to be paid.
The income a person has not paid tax on is taken away from the Personal Allowance, and then the last digit is removed to make up the number is a tax code.
The letter or letters contained in a tax code, however, provide insight into a person’s situation and how it impacts their Personal Allowance.
The letter L, for example, represents a person being entitled to the standard tax-free allowance, while NT states a person isn’t paying any tax on this income.
The most common tax code for this tax year is set at 1257L, which is used for most people who have one job or pension.
Tax codes can sometimes be incorrect due to a variety of reasons, which is why it is even more important to check.
If a person has changed jobs or salary, or has decided to work from home, their tax code could change accordingly.
Tax code errors usually happen when HMRC does not have enough information about someone’s circumstances.
If someone thinks their tax code is incorrect, then they can contact HMRC using a variety of methods to potentially rectify the issue.
Firstly, individuals are able to check their Income Tax online to see:
- What their tax code is
- If their tax code has changed
- How the tax code is worked out
- How much tax a person is likely to pay
There is a dedicated service on HMRC’s official website which covers the current tax year.
Alternatively, individuals may decide to contact HMRC by post, or via the Income Tax general enquiries helpline.
