TODAY I AM GOING TO TALK ABOUT HOW TO CHECK YOUR PAYE CODE.
Have you ever checked your PAYE code? Has your PAYE code ever been wrong?
First, you might be asking...
What is a PAYE code?
PAYE is worked out depending on how much you earn and whether you're eligible for the personal allowance which is the amount of money you're able to earn each year, tax-free.
How do I find out my PAYE code?
There are several places you can find your tax code:
- PAYE Coding Notice, Form P2 – you and your employer get this ‘notice of coding’ from HMRC in the mail every March. It sets out how much tax your employer will deduct from your wages in the coming tax year.
- Payslips – weekly or monthly, from your employer.
- P60 – your annual tax summary, from your employer.
- P45 – document received from an employer when you stop working for them.
- HMRC – if you cannot find any of these documents, then call HMRC. You will need your National Insurance Number and they will have security questions for you, before they release your tax code.
Most PAYE codes have a number followed by a letter.
The number tells the employer how much tax free pay you are allowed. The letters also have a specific meaning - you can find out more specifics here https://www.gov.uk/employee-tax-codes/letters. Some codes just consist of letters. Codes may also have ‘X’ attached to the end (used to be ‘W1’ or ‘M1’); meaning the payroll should be used with the tax code stated, but on a week 1 or month 1 basis.
What should my tax code be? How do I know what my tax code should be?
Is my PAYE coding correct?
First of all, it is always up to you to check that your code is correct. It’s not the responsibility of your employer or of the HMRC. So if you’re not sure, there are ways of checking.
If you’ve recently changed employment, job role, had a promotion or started a new job then the likelihood is your tax code will need to change. To pre-empt any mistakes down the line you can tell HMRC about a change in your income here.
Or if you think your tax code is wrong, you can update your employment details using the check your Income Tax online service.
How does the HMRC work out tax codes?
Your tax code is based on how much you can be paid tax free before you start to incur charges. The numbers and letters refer to various bands and other related allowances depending on if you’re in a couple or not, or other circumstances that are taken into consideration.
Research by HMRC in 2018 showed that the vast majority of taxpayers who are under PAYE do nothing when they receive a PAYE coding notice.
Why? One important factor seems that the notice looks generic and not personalised. It could also be that people don't like tax and so it's simply easier to put your head in the sand and pretend that it won't affect you.
- HMRC will advise PAYE code changes using a form P2 notice.
- If your PAYE code is wrong, you pay the wrong amount of tax.
- HMRC issues a P800 tax calculation at the end of the year if you are not within Self Assessment (i.e. you have not been sent a notice to file a Self Assessment return).
- If you have an underpayment of tax calculated via a P800 notice you cannot appeal it. You should have checked your tax code.
HMRC issues some 20 million PAYE codes to employees and pensioners each year. Using data collected under PAYE Real Time Information Reporting by employers, HMRC should be capable of generating the correct code for you.
The top causes of incorrect PAYE codes, are:
- You have multiple jobs or pensions and HMRC has not restricted your personal allowances and the code is only given for one job/pension. Check your code.
- Have you told HMRC you have more than one job?
- Do your employers know that you have another job? They might have started you on the wrong code if you did not complete a starters form fully.
- You have taxable employment benefits that have not been adjusted in your PAYE code.
- Check your P11D and inform HMRC as soon as you spot a problem.
- You have had employment expenses in a previous year, and HMRC continues to adjust your PAYE code as if you incur those costs in the current year when you don't.
- Check your code and inform HMRC.
- HMRC has adjusted your code for pension contributions or gift aid and you no longer make those payments.
- Check your code and inform HMRC.
If you have any questions about Self Employed Allowable Expenses, or any other accounting needs, you can contact me here.
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