The operation of PAYE, the system used in the UK for collecting income tax, relies heavily on the tax code. This code specifies the amount of tax that should be deducted from an employee's pay, as well as the amount of 'free pay' they are entitled to receive ...
HMRC employs a system of dynamic coding, which means that tax codes are regularly updated to reflect changes in an individual's circumstances. This can include adjustments to account for underpayments of tax.
This allows you to ensure you're paying the correct amount of tax. If you receive a tax code for the upcoming tax year before the start of that year on the 6th of April, it's essential to check that it's correct. If you find an error, you should contact HMRC as soon as possible, preferably before the 5th of April, so that the correct tax code can be used from the start of the tax year.
Your tax code is a combination of letters and numbers, with the number indicating your tax-free pay entitlement for the year. For example, if you're entitled to the personal allowance of £12,570 for the tax year 2023/24 and have no adjustments to your code, your tax code will be 1257L. Adjustments may be made to account for things like benefits in kind or unpaid tax, which can reduce your tax-free pay for the year.
The letter in your tax code indicates your personal circumstances. For example, the most common letter suffix is L, indicating that you're entitled to the standard personal allowance. Other letters indicate different circumstances, such as a reduction in your personal allowance due to the transfer of the marriage allowance to your spouse or civil partner.
Some special tax codes don't follow the number and letter format, such as code BR, which indicates that all of your income is taxed at the basic rate. Emergency tax codes may also be used while your employer waits for a tax code from HMRC.
You can use the online service to check your income for the current tax year and to report any changes to HMRC. You can also contact HMRC directly or have a tax professional or accountant do so on your behalf.
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