Many workers in the UK might be paying too much tax without knowing it. Your tax code decides how much income tax is taken from your wages or pension each payday. If your tax code is wrong, you could be overpaying taxes and missing hundreds or thousands of pounds from HMRC.
At Clarkwell & Co. Chartered Accountants, understanding your finances gives you power. Our team helps you understand and manage your tax situation so you can reclaim any money you deserve. Here’s a guide on why checking your tax code regularly could lead to unexpected financial benefits.
Why Your Tax Code Matters More Than You Think
Your tax code is important because it affects how much money you take home. It tells your employer or pension provider how much tax to take from your income. If your tax code is wrong, you might pay too much tax and have less money to spend.
You might not notice if you overpay because the deductions happen automatically. You can ensure the deductions are correct by regularly checking your payslip and tax code. This helps you keep more of your earnings and avoid losing money.
Common Reasons Your Tax Code Might Be Incorrect
Your tax code can become outdated or wrong for several reasons. Common causes include changing jobs, starting a second job, changes in your income, adjustments in personal allowances, or mistakes made by previous employers.
Changes like marriage, divorce, or retirement can also impact your tax code. It’s important to inform HMRC about any major changes in your life to keep your tax code accurate.
Easy Ways to Check Your Current Tax Code
Checking your tax code is easy and quick. Here are some simple ways to verify it:
- Payslips: Always check your monthly payslips, especially the tax code section.
- P45 Forms: If you’ve recently changed jobs, your last employer will give you a P45 form showing your tax code.
- Government Gateway: Register for a Government Gateway ID to access your tax details online, including your current tax code and earnings history.
These steps can help you quickly find mistakes so you can fix them immediately.
Decoding Common Tax Codes
UK tax codes can be confusing. Here are some common codes explained:
- 1257L: This code shows you can earn £12,570 a year without paying tax.
- BR (Basic Rate): All your income is taxed at the basic rate of 20%. It often applies if you have more than one job.
- D0 or D1: These codes are for when your second income is taxed at higher rates of 40% or 45%.
- NT: This means no tax is taken from your income.
- Scottish (S) or Welsh (C): These codes are for people living in Scotland or Wales and indicate different tax rates for those regions.
Understanding these differences helps you predict how your income is handled and taxed.
Practical Tools to Verify Your Tax Code
If tax codes are confusing, online tools can help. MoneySavingExpert.com has a free, easy-to-use tax code calculator. This tool shows if your tax code is correct or you might get money back from HMRC.
Using these resources makes managing taxes easier and helps you take control of your finances with little effort.
Claiming Your HMRC Tax Refund: Step-by-Step
Getting back overpaid tax is easy. You can reach HMRC in a few simple ways:
- Phone: Call the HMRC helpline for quick help.
- HMRC App: Use the app to check your taxes easily and request refunds.
- Online Portal: Log into your HMRC account on GOV.UK to handle claims online.
When you contact HMRC, they will check your claim. If it’s valid, they will ensure your employer updates your tax code quickly. You should then get your refund in your paycheck or receive a cheque for any money owed from previous years.
What if You’ve Overpaid for Multiple Years?
You can reclaim overpayments not just from this tax year but also from the past four years. This means you can get money back as far back as the 2020/21 tax year. Getting refunds from multiple years can help your finances.
If your situation goes beyond these four years, contacting HMRC is still a good idea. In special cases, if HMRC made a mistake, you might still be able to get back your overpaid tax.
Addressing Underpaid Tax
Knowing you’ve underpaid taxes because of a wrong tax code can worry you, but acting quickly can lessen the financial impact. If HMRC discovers an underpayment, they usually fix it by adjusting your future salary or setting up a payment plan.
If the underpayment isn’t your fault, you can ask to cancel it by filling out form A19 or requesting an “Extra Statutory Concession.” While HMRC might not always agree, taking action early can help reduce financial stress.
Importance of Immediate Action
Delaying action on tax issues can make problems worse, leading to bigger debts or missed refunds. By quickly addressing any concerns, you can manage your taxes better, avoid interest on unpaid taxes, and reduce financial stress.
Taking charge of your taxes gives you peace of mind and helps keep your finances stable, avoiding unnecessary complications.
Additional Tips to Maximise Your Tax Efficiency
Here are some simple ways to improve your tax efficiency:
- Check Your Payslip: Regularly review your payslip to understand your earnings and deductions.
- Salary Sacrifice Schemes: You can swap part of your salary for benefits, reducing your taxable income and possibly lowering your tax bill.
- Pension Contributions: Putting more money into your pension can decrease your taxable income, resulting in tax savings.
- Claim Allowances and Reliefs: Make sure to claim any allowable expenses, tax reliefs, and allowances that apply to your job or situation.
Clarkwell & Co. offers personalised advice based on your situation to improve your tax efficiency and financial health.
Your Next Steps
- Regularly check your payslip for accuracy.
- Use online tools to verify your tax code.
- Promptly address any issues with HMRC.
- Explore salary sacrifice and other tax-efficient strategies.
- Stay informed about your financial rights and entitlements.
At Clarkwell & Co. Chartered Accountants in London, we’re ready to help you. Contact us today to ensure you get all the money you deserve from HMRC.
