Today we’re chatting about something we all hope we never have to deal with, but need to know about just the same: the emergency tax code. This is one area of the UK tax system that can often lead to confusion and, potentially, overpayment on tax, so we’ll cover everything you need to know about it.
Understanding Tax Codes
So, let’s start with the basics: tax codes. These little alphanumeric sequences are a critical part of determining your tax obligations. They’re instructions from HMRC (Her Majesty’s Revenue and Customs) to your employer or pension provider on how much tax to take from your pay. You’ll see various types of tax codes, but today we’re specifically focusing on the emergency tax code.
Emergency Tax Code: A Closer Look
An emergency tax code is something you might find yourself on when HMRC doesn’t have enough information to give you the correct tax code. It’s often applied when you start a new job or receive a pension but your employer or pension provider doesn’t have the details needed to allocate a standard tax code. Remember, an emergency tax code doesn’t mean there’s an emergency – it’s a placeholder of sorts, ensuring you’re paying tax until things get sorted.
Effects of the Emergency Tax Code on Your Income
Now, let’s look at the nitty-gritty. The emergency tax code could influence the amount of tax you pay by not giving you all the personal allowance that you are entitled to. This means more tax is deducted from your income, since you are not benefiting from all your tax-free personal allowance.
Let’s say you have been abroad travelling for the past year and you have just stated your fist job since you came back. You started this job on the first of July in the tax year and you have no other source of income. You are getting paid £3,000 monthly and have an emergency tax code of of 1257M1. The tax that will be deducted from your July salary will be £390.50. With a regular tax code, you’d have no tax to pay for the month of July because your tax-free personal allowance would have been more than your £3,000 salary.
The reason that you would have had no tax to pay in July is because you would have had 4 months worth of personal allowance but on an emergency tax code, you only received 1 month personal allowance leading to higher tax deduction.
Steps to Take if You’re on an Emergency Tax Code
So, what do you do if you find out you’re on an emergency tax code? Don’t panic – there are steps you can take. First, confirm if the tax code is accurate. This can be done by checking your tax codes through your HMRC online account. If you believe your tax code is incorrect, contact HMRC. They can review your situation and issue a new tax code if necessary, ensuring your tax deductions align with your actual tax obligations.
Conclusion
And there you have it! We’ve journeyed through the emergency tax code, understanding how it works, its impact on your income, and what to do if you find yourself on it. As always, keep a close eye on your tax codes and don’t hesitate to contact HMRC if something seems off. Staying vigilant and proactive is the key to navigating the UK tax system effectively.
Frequently Asked Questions
- What is an ’emergency tax code’? It is a temporary tax code that is used when HMRC does not have enough information to give you the correct tax code.
- How does it affect my tax? An emergency tax code could place you on a ‘month1 or week 1’ tax ax code. This means that your income may taxed without giving you all your tax-free personal allowance.
- What should I do if I find myself on one? If you find out you’re on an emergency tax code, confirm if the tax code is accurate by checking your HMRC online account. If it is incorrect, contact HMRC to have it reviewed and potentially changed.