The Blog

Is Your Tax Code Right?

(Five Minutes That Could Be Worth Hundreds)

Changed jobs this year? Then there’s a small code on your payslip worth checking. It takes about five minutes, and if it’s wrong it can cost you a couple of hundred pounds a month until somebody notices.

 

What is a tax code?

It’s how HMRC tells your employer how much you can earn tax-free before income tax comes off. You’ll find it on your payslip, usually near your name or National Insurance number.

 

What should mine say?

For most people with one job, it’s 1257L. The number is your tax-free allowance, £12,570 this year, with the last digit dropped. The L means you get the standard amount.

 

Mine says 1257L M1, or W1, or X. What’s that?

That’s an emergency code. It’s common after a job change, when your new employer doesn’t yet have the details from your old one.

On an emergency code, each payday is treated as if it were the only one. You get that month’s (or week’s) slice of your tax-free allowance, but no credit for anything earlier in the year. If you had a gap between jobs, or earned less earlier on, you’ll probably pay too much. You can also pay too little, if your old job already used up your allowance.

 

What about 0T or BR?

These are the expensive ones. 0T usually means you’re getting no tax-free allowance at all. BR means everything you earn in that job is taxed at 20%, which is normally meant for a second job.

If you’re on BR in your main job and earn more than £12,570 there, you lose the whole allowance. That’s £2,514 extra tax a year, or about £210 a month.

How do I check?

Three ways:

 

It’s wrong. What do I do?

First, give your new employer your P45 if you haven’t already. If you’ve only just started, GOV.UK says to wait 35 days before contacting HMRC, because the details can take that long to come through.

After that, tell HMRC through the app or your online account. They’ll send you and your employer a new code, usually within 15 working days. If you’re paid monthly, it should show on your next payslip or the one after.

 

Do I get the money back?

Yes. Tax you’ve overpaid is usually refunded through your pay once the new code is used. If not, HMRC sorts it after the tax year ends in April and writes to you.

 

One warning

A tax refund is exactly what scammers pretend to offer. HMRC will never text you about a refund. Forward suspicious texts to 60599, and suspicious emails to phishing@hmrc.gov.uk.

Try this: next payday, find the code before you look at the total. If it’s 1257L with nothing after it and you have one job, you’re probably fine. If it’s anything else, spend the five minutes.