It is always very important to check your tax code to make sure that you are receiving all the allowances to which you are entitled and to ensure that all your income is being properly taxed.
The Coding Notices are quite complex, but you should check the following key aspects as a matter of course.
Tax codes
- Am I getting the correct personal allowances? If you are over 65, check you are receiving the correct Married Couples Allowance.
- Am I getting all the deductions I am entitled to? If you have job expenses, make large pension or gift aid payments, then these should be reflected in the tax code. Some adjustments are made through changes to the higher rate tax band, so these are very complex to check.
- Is my other income being correctly accounted for? If you receive a pension, this should be reflected in your tax code by reducing your allowances.
- Is any earlier underpayment correctly accounted for? If you have underpaid tax in previous years, this should be reflected in the tax code, so that an underpayment of £250 should result in your tax code being reduced by £1,250 (@20% = £250) so that the tax is recovered. These can often be omitted, which makes checking even more difficult.
- Is the code going to the correct employer? If your previous employer omitted to tell HMRC that you had left, you can sometimes find that the allowances are being given in a job that you have left.
- Is my employer using the correct tax code? HMRC may very well have given you the correct tax code, but if your employer isn’t using it, then you will be paying the wrong amount of tax. In these cases it can be easiest and quickest to contact HMRC on 0300 200 3300 and ask them to reissue the current code to your employer.
If you have multiple employers, or lose your personal allowances because your income exceeds £100,000, or you have particularly complex affairs, then you may want to speak to us directly to check the tax code on your behalf.
Student loans and your tax code
Student loans are normally accounted for through your payroll payments. We have recently had a difficult case where the individual took early retirement and received a substantial pension. His income from multiple employments were each below the threshold for student loan repayments, but when we submitted the tax return, we realised that Student Loans were due on the entire income.
HMRC initially refused to adjust his tax code for his pension to reflect the current year Student Loan liabilities, initially claiming it was impossible to do so. Of course it is possible, but HMRC staff need to be persuaded to treat it as an extra adjustment and not as a Student Loan related matter.
We need to keep a close eye on the client’s coding notices to make sure that the changes do not get undone by another HMRC office.
Disclaimer
The information provided is for general information purposes only.
Legislation and details may have changed since this was written. The text may not include all matters that are relevant to your individual situation.
You should not make decisions, or refrain from making decisions, without taking further professional advice about your specific circumstances.