UK workers are being urged to check their payslip for a tax code that could be costing them an average of £689 in overpaid tax. HMRC has warned that it is the employee's legal responsibility to ensure their tax code is correct, not the employer's or HMRC's.
Average Overpayment of £689
According to research by Canada Life, the average overpayment of tax in the UK is £689. Many people are on the wrong tax code, including regular PAYE employees, which can result in paying too much or too little tax. Both scenarios are problematic: underpayment leads to a sudden tax bill, while overpayment means losing salary unnecessarily.
Standard and Emergency Tax Codes
For most basic rate taxpayers earning over £12,570, the standard tax code is 1257L. This code should appear on weekly or monthly payslips. However, codes ending with 'W1', 'M1', or 'X' indicate emergency tax codes, such as 1257LW1, 1257LM1, or 1257LX. These often arise from job changes or incorrect details provided to HMRC.
Emergency tax codes mean that the correct tax for the year has not been paid. Employees remain on this code until the correct tax is settled, which could result in money owed to or from HMRC.
Other Tax Code Meanings
Other codes include BR, which taxes all income at the basic rate (common for second jobs); D0, taxing all income at the higher rate; D1, taxing at the additional rate; and NT, meaning no tax is paid on that income.
Martin Lewis Warning
Speaking on The Martin Lewis Podcast in January, the money expert said: “Do you know what your tax code is? If you’re an employee you need to, because millions of them are wrong each year and if they are wrong, legally it’s your responsibility not your employer’s and not HMRC’s, to ensure it’s correct.”
He added: “It could mean you’re paying far too much tax each year. You don’t want that. It could also mean, you’re paying too little tax. Sounds good? It isn’t, because at some point they WILL catch up and make sure you pay the tax that you owe. So you could be hit, slapped across the face, with a big tax bill and not have the cash to pay it, which is a nightmare.”
Lewis advised checking the tax code annually, especially if it has never been verified before.
