HM Revenue and Customs (HMRC) has issued a stark reminder to every taxpayer in the UK: the onus is on you to ensure your tax details are accurate. Failing to keep your information up to date with the tax authority could lead to you paying an incorrect amount of tax on your income or pension.
The Personal Responsibility for Your Tax Code
A spokesperson for HMRC stated clearly: "Everyone is responsible for ensuring their own tax code is correct." They emphasised that taxpayers can manage and update their code swiftly using the official HMRC app or by accessing their online personal tax account. The tax office typically sets your code based on information provided by your employer or pension provider, but ultimate verification lies with the individual.
Your tax code is a crucial piece of information that dictates how much income tax should be deducted from your pay. The most common code for the current tax year is 1257L, which grants you the full personal allowance. This means you can earn up to £12,570 in a year before you start paying income tax on your earnings.
The Risk of an Emergency Tax Code
One of the most common situations where people end up paying the wrong tax is when they are placed on an emergency tax code. This often occurs when starting a new job if your new employer does not have a record of your previous earnings and tax details from that tax year.
As explained on the Government's official website, an emergency code means your tax is calculated solely on what you earn in that specific pay period, rather than your total cumulative income for the year. You are effectively taxed as if you will earn that same amount every week or month for the entire year, which can quickly lead to an overpayment or underpayment.
Emergency codes are identifiable as they end in either 'W1' for weekly pay, 'M1' for monthly pay, or 'X'. You might also see 'NONCUM' on your payslip.
How to Protect Yourself from Tax Errors
To avoid being put on an emergency code, you should provide your new employer with your P45 form from your previous job. This document contains vital details about your tax situation up to your leaving date. If you did not receive one when you left, you have the right to request it from your former employer.
For ongoing management, HMRC urges all taxpayers to proactively check their details. You can view the information HMRC holds about you by setting up a personal tax account on the GOV.UK website or by downloading the free HMRC app from the Apple App Store or Google Play. If you are unsure what your tax code means, there is a dedicated tool on the GOV.UK site that deciphers the numbers and letters.
Allowing incorrect details to persist on your record can have significant financial consequences. Underpaying tax over a long period could result in a substantial and unexpected bill from HMRC, while overpaying means you are effectively giving the government an interest-free loan. Taking a few minutes to check your code today could save you considerable hassle and money tomorrow.
