Published On: Mon, May 13th, 2024
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HMRC tax warning as one mistake could see you lose more of your salary | Personal Finance | Finance

Brits have been urged to check their as a “costly mistake” could see them lose more of their salary to .

The warning has been issued by one tax expert, who has urged workers to check whether their tax code is right. This is because it can be possible for your tax code info to be inaccurate or out-of-date without you realising it.

This would then result in incorrect taxes being taken from your wages and pensions.

Tax codes are made up of a series of numbers and letters and are assigned to you by HMRC based on the information it has on your income. This information is provided to HMRC by your employer or pension provider, reports the Mirror.

The code dictates how much of your income is taken in tax and everyone who is paid through PAYE has one.

The Mirror reports that Adam Bennett, a workplace expert at Digital ID said: “If your tax code results in too much tax being deducted, you might receive a smaller paycheck and could struggle financially until you reclaim the excess tax.”

“A wrong tax code could also mean you’re underpaying tax, leading to a surprise bill from HMRC later, possibly with interest and penalties. Incorrect deductions reduce your disposable income, impacting your ability to manage expenses or save.”

It’s essential to grasp the meaning behind your tax code to make sure you’re not being charged too much. The numbers within it symbolise your tax-free earnings, while the letters reflect various adjustments linked to circumstances.

The most prevalent tax code currently is 1257 for those with a single income source – either a job or pension. Individuals falling under this tax code are entitled to earn up to £12,570 annually, which represents the standard personal allowance, before being taxed.

To check your tax code, scour through your payslip or look into a P45 if you’ve recently left a job, or a P60 at the finish of a tax year. Alternatively, your tax code can be found on the website.

According to HMRC, it falls upon each taxpayer to ascertain they’re assigned the correct tax code.

In cases of overpayment, HMRC will liaise with your employer should refund you in your next payslip. However, should the tax refund be from a previous tax year, a cheque for the due amount will usually be sent by HMRC.

If an inaccurate tax code has led to underpayment of tax, actions will be taken by HMRC to recoup the underpaid sum. If lump-sum repayment causes a financial crunch, HMRC will help set up a payment plan to ease the process.

Adam Bennett stated: “Keeping an eye on your tax code and understanding its implications is essential for managing your finances effectively. Mistakes can happen, but by staying proactive and informed, you can catch errors early, avoid unexpected bills, and ensure you’re not paying more than you should.”

Full list of tax code letters – and what they mean

  • L – You’re entitled to the standard tax-free personal allowance
  • 0T – No personal allowance
  • BR – All income from this source is taxed at the basic rate
  • DO – All income from this source is taxed at the higher rate
  • D1 – All income from this source is taxed at the additional rate
  • K – Total deductions exceed their allowances
  • M – Marriage Allowance receiving 10% of their spouse or civil partners’ personal allowance
  • N – Marriage Allowance providing 10% of their unused personal allowance to their spouse or civil partner
  • NT – No tax is due on this income
  • C – Paying income tax in Wales
  • S – Paying Scottish rate of Income Tax in Scotland
  • T – Tax office needs to review the tax code or to keep personal details confidential
  • W1 or M1 – Emergency tax codes for week one or month one depending on when a person gets paid.

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