How do you know if you're on the right tax code?

17 February 2010

HM Revenue & Customs has had to admit that thousands of taxpayers may have been sent the wrong tax codes for the new financial year.

That means that when the new tax year begins in April, some people could end up paying the tax man more than he's due. HMRC has blamed the errors on a new coding system, admitting that "some people" will receive an incorrect code.

So, how can you check you're being taxed using the correct code? Read on...

What tax code should I have?

Your tax code refers to your tax-free allowance - the amount of income you can receive without paying the tax man a penny. For most of us, that's going to be £6,475 over the year 2010/11.

If that's the case, your tax code will be 647L - if you multiply the number by 10, you'll see the total amount of income you are allowed to earn before you have to start paying tax.

People with a more complicated tax situation will have different codes, which we will come to shortly.

Who's affected?

Do you have a second job, receive taxable employee benefits or a pension? If you do, it's a good idea to check your code because you may be affected.

You'll know if you need to watch out because the tax office will send you a code notice by post. If you have received or are expecting a letter then you'll need to check it carefully to be sure your information is correct.

What other codes are there?

If you aren't a straightforward 647L case, there are a number of letters you might see at the end of your code. Double check what each means and if you think it shouldn't be applied to you, tell HMRC as soon as you can.

P - The tax man believes you are aged between 65 and 74 and are eligible for the full personal allowance - £9,490 for this age group.

Y - This shows you are aged 75 or older and are eligible for the full personal allowance - £9,640 for anyone this age.

T - This means there are other things HMRC needs to review in your tax code.

K - This code shows that your taxable benefits are higher than your tax allowances

Certain tax codes are made up of two letters and no numbers, or a D and a 0. These are used if you have more than one source of income and have used up all your allowances through your main job or pension.

BR - this code means that all your income is taxed at the basic rate - 20%

D0 - if you see this code, HMRC is taxing all your income at the higher rate of 40%

NT - this means that no tax will be deducted from your income or pension.

Will this problem be fixed before new tax year starts?

HMRC states that it is looking at ways to correct as many discrepancies as possible before the new tax year starts on 6 April.

However, don't assume any mistake will be rectified automatically - it is always worth double checking otherwise you could end up paying the wrong amount of tax.

Can I get any help?

HMRC has urged any taxpayers who cannot work out their correct code to call its helpline: 0845 3000 627.

If you suspect there's an error or need some assistance, you should contact the department as soon as possible to ensure that your code is right before April.

You could also approach your HR department at work, or your pension provider if you're retired, and ask for some assistance.

How do I correct an error?

If you are on the wrong code the sooner you contact your tax office the better.

You can find the name of your local tax office on your coding form or by getting in touch with your employer or HMRC directly via the helpline.

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