Tax codes can be a minefield. In a nutshell, your tax code is based on how much income you earn from your employment along with your pension and any benefits or tax reliefs you receive. Normally, HMRC will tell your employer or pension provider the code to use.

But what happens if you’ve been placed on the wrong tax code and end up paying the wrong amount of tax? What does it mean? How can you sort it?

Let’s take a look…

What should your tax code be?

If you’re an employee you’ll be given a tax code – it’ll show on your payslip. There are a few different tax codes, each of which mean something different.

Here are some common ones:

• L – You’re entitled to the standard tax-free personal allowance
• T – Your tax code includes other calculations to work out your Personal Allowance
• 0T – Exhausted Personal Allowance or new job with missing employer tax code details.
• BR – our employer will put you on a BR tax code if they don’t have the details needed to work out how much tax you should pay on your wages

The most common tax code is 1275L. Anyone with this tax code will be entitled to the standard tax free allowance of £12,570.

If you’re on an emergency tax code (1257 W1, 1257 M1, or 1257 X) it’s because HMRC hasn’t got enough information about your income when you start a new job or go self-employed.

For the full list of tax codes and their meanings, give our guide to emergency tax a read.

Why your tax code might change

HMRC might change your tax code if your circumstances change – whether because you’ve got a second job, another pension or have stopped or started getting benefits from your employer.

And if you get taxable state benefits, it is likely these will be included into your tax code. These include; bereavement allowance, carer’s allowance, jobseeker’s allowance, marriage allowance and contribution-based employment and support allowance (ESA).

If you think your tax code is wrong

If you’re working on the wrong tax code, you might be paying too much or not enough tax. It’s not something to panic about, but the sooner you get it sorted the better.

To do this, check and update your details using the government income tax online service. Then make sure you’ve told HMRC about any change in your income that could have affected your tax code. The tax office will then update your tax code.

If you find it difficult to use the online platform you can call HMRC and tell them directly on 0300 200 3200

Claiming a refund if your tax code is wrong

If you’re working on the wrong tax code you might be due a tax refund. There are a couple of ways to do this – the DIY approach or through an expert.

Option 1 – to do it yourself head to the government website, sign in to your personal tax account using your Government Gateway user ID and follow the instructions. Or pick up the phone to HMRC, but make sure you’ve got all your financial information and documents to hand.

HMRC will give you a P800, which will say if you’re owed or owe tax. If you’re due a refund you’ll get a cheque (which can take up to 5-6 weeks). Or HMRC can make a bank transfer, which is a lot quicker.

Option 2 – the other option is to get in touch with the experts like Brian Alfred. Along with managing this process, we’ll make sure you receive the maximum tax refund – factoring in all your business expenses.

Speak to an expert

Still unsure of where you stand? Not to worry, get in touch and we’ll be able to find out if you’re due a tax refund.