It is that time of year again. The time of year when HMRC flick the big ‘issue’ switch on their tax code computer and millions of employees disappear under a mountain of paper.
The codes usually appear on people’s doormats between January and April. HMRC stagger the issue of codes so that they are not overwhelmed when people call the helpline to shout about theirs being incorrect!
This year, however, the mountain of tax code notifications issued by HMRC may resemble more of a large hill – mainly because of a change in the circumstances under which HMRC do not issue a tax code for the new tax year.
If your tax code has not changed, it has only been affected by changes in the budget or you do not earn enough to pay tax, you will not receive a tax code notice (otherwise known as a P2) this year. However, for those lucky enough to receive a coding notice what should you do with it and what are the things you might want to watch out for?
The tax code operated against your income is essentially HMRC’s best guess of your circumstances – how much you might earn this year, what your expenses and taxable benefits are. The aim of the code is to deduct the correct amount of tax and hence avoid the dreaded underpayment form (P800) arriving later on. However, the information HMRC hold on you might not be correct so it is always a good idea to read your code and see if there is anything obviously wrong.
If you have more than one source of PAYE income (like a job and a pension) you may receive a tax code for each one. The first obvious point is to make sure you have received the new 2015-16 personal tax free allowance of £10600 (unless you are an older pensioner when you might get more, or you earn over £100000 in which case your personal allowances are might get less or none at all). Another area to check is the amount of any work expenses included in your code – these could be flat rate expenses for items such as laundry or larger more specific amounts that have been agreed in previous years.
These can carry through unchanged to the next year’s code and it is always worthwhile checking that the amounts are still valid. Benefits in kind, for example company cars and medical insurance, are an area which often cause incorrect codes. Check that the amount of benefit is accurate – your employer will be able to confirm what the coded benefit should be if you don’t know. Also check that your benefit isn’t being given to you through the payroll as part of your pay – it shouldn’t be in your code as well!
A change this year to be aware of is that HMRC can now include a higher level of coded out debt in your code (for example if you owe money from other taxes or overpaid benefits like tax credits).
If you earn over £30000 the amount of such debt that can be coded out rises by £2000 for every additional £10000 of income – up to a total of £17000 on earnings of £90000 a year or more. It is definitely worthwhile checking that you agree with any level of debt included in your new code.
If you do find something wrong on your coding notice you will need to contact HMRC and tell them so they can correct and reissue the code to you and your employer. You can ring the Income Tax Helpline on 0300 200 3300 if you don’t mind waiting in a queue, or you can now email your query to HMRC using the form on their website https://www.gov.uk/reporting-your-tax-code-as-wrong
Finally, it is worth bearing in mind that HMRC are constantly reviewing codes right up to and beyond the start of the 2015-16 tax year, so you may be the recipient of several different updated codes over the next few months.
Don’t panic if you get many different coding letters, this can happen and it just means HMRC have been busy trying to get your code as accurate they can!