Background
An individual’s tax code is used by an employer to determine how much income tax to deduct from that individual through the payroll. The tax code may change depending upon an individual’s personal circumstances.
Often it can be difficult to understand and determine if the tax code being used is appropriate. HM Revenue & Customs (‘HMRC’) have now released a new online tool to help taxpayers understand what their tax code means.
Detail
Tax codes are used by HMRC as an instruction to employers to determine how much income tax to withhold from their employees through the PAYE system. An individual’s tax code can be altered for a number of reasons, for example to reflect additional employments, taxable benefits or underpayments of tax owed by the employee. HMRC will inform a taxpayer of their new code either by post or through their online personal tax account.
The online tool is designed to explain a taxpayer’s tax code or why it may have changed.
In order to use the tool a taxpayer will need their tax code and their annual income before deductions (or at least an estimate of it). Depending on their individual circumstances, a taxpayer may also need details of any taxable benefits they receive from their employer or their state pension amount.
It can be important to check a tax code since HMRC may not have all the relevant or up to date information on an individual, and this could result in the code over or under collecting tax from their income. Issues tend to most commonly arise where an individual has more than one job, starts or stops receiving a taxable benefit, or changes jobs. It is an individual’s responsibility, and not that of the employer, to ensure this code is correct.
The new online tool will also direct taxpayers to the relevant service to change their tax code in specific instances. More generally, if a taxpayer needs to change their tax code, they can use the Check your Income Tax online service. Unless specifically authorised by the employee, an employer is not able to change their employee’s tax code.
If you would like further information on tax codes or would like us to check if your tax code is appropriate speak to your usual contact at the firm or contact our Tax Director, Jenny Marks.
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