Tax experts from ICAEW are urging tax payers who are worried that they may receive a letter from HMRC informing them they have overpaid or underpaid income tax to check their personal tax codes.
Anita Monteith, Tax Faculty technical manager at Institute of the Chartered Accountants in England and Wales (ICAEW), said: “HMRC has said that it believes six million people may have paid the wrong amount of tax. For some people, particularly those who think they may owe tax, this can be worrying and unsettling. They should check their pay slips or PAYE code notices for the last two years to see if any errors have been made.
“Tax codes are used by employers and pension providers to make sure you pay the right amount of tax and get the tax allowances and reliefs to which you’re entitled.
“Your tax code depends on how much tax free income you are allowed. For example, if your only allowance is the basic Personal Allowance – £6,475 for the current tax year – your code is based on this. Simply replace the last digit with a letter which depends on your personal circumstances. There are higher allowances for those over 65, but the actual amount can be affected by the level of your income.
“Check to see if your number has changed significantly. If it has, is it because your allowances changed or you had additional sources of income or made extra payments eligible for tax relief? Has your letter changed? If so, does it correctly describe your present circumstances?”
Common tax code letters and what they mean:
| L | For those eligible for the basic Personal Allowance – it is also used for ’emergency’ tax codes |
| P | For people aged 65 to 74 and eligible for the full Personal Allowance |
| V | For people aged 65 to 74, eligible for the full Personal Allowance and the full Married Couple’s Allowance and estimated to be liable at the basic rate of tax |
| Y | For people aged 75 or over and eligible for the full Personal Allowance |
| T | If there are any other items HMRC still need to review in your tax code |
| K | When your total allowances are less than your total deductions |
| BR | Generally used for a second source of income where all allowances have been included in a tax code applied to the main source of income. |
| DO | Used when higher rate tax is due |
Anita Monteith added: “If you have had two or more jobs at the same time it’s likely that you’ll have received more than one tax code. The same applies if you have had income from two or more pensions, or a pension and a job. If this is the case, it is especially important to check that the letters and numbers that make up your tax codes are right.
“If you think your tax code is wrong, or you don’t understand it, you need to contact the tax office on your coding notice straight away. Alternatively speak to your employer or pension payer or ask a chartered accountant to help.”
