I have received a letter from HM Revenue & Customs (HMRC) advising me of my tax code. I don’t really understand what this means. My employer looks after my tax and deducts any tax I owe HMRC from my earnings before I receive my wages each month. I assume that he is calculating my tax correctly so why have HMRC issued me with this letter?
Most UK employees receive a notice of tax coding from the HM Revenue & Customs at least once a year. Many receive the letter and assume that as it is from the Tax Office and their employer looks after their tax it must be correct and dispose of the letter without giving it due consideration. A PAYE notice of coding is an important document as it determines the amount of tax which will be deducted from an employee’s income at source, for example, tax deducted by an employer or pension provider. Your employer is not responsible for ensuring that your coding notice is correct. Your employer is only responsible for ensuring that the coding you have been given is used to deduct tax from your earnings before they are paid to you. The responsibility for ensuring that the coding notice is correct is your responsibility. It is very common for incorrect or out of date coding notices to be issued. If this occurs your employer may be deducting too much tax from you each month or you may not be paying enough tax. If this is identified at a later date you could be the subject of a tax enquiry. It is therefore absolutely necessary that all changes to your tax code should be checked when you receive a coding notice from HMRC each year.
Particular attention should be given as to whether you have been given the correct personal allowance. If you are over 65 you are entitled to an enhanced allowance. All adjustments to your coding for pensions or second salaries should also be checked and any underpayments of tax from an earlier tax year need reviewed. Car and fuel benefits, especially if your car was changed during the year, and any other benefits in kind which may have ceased in the previous year are often incorrectly adjusted on the coding notice. Any inaccuracies should be identified and reported to HMRC immediately.
Also, if you are in receipt of other income which is received gross of tax, such as rental income, the Inland Revenue may include a deduction in your tax code to collect the tax due from this income from your salary or pension. This effectively means you would be paying the tax early. You can therefore request that this deduction is not included in your tax code and request to pay the tax becoming due through your self assessment return.
A simple phone call to the Inland Revenue is often sufficient to remedy the situation. However, if in any doubt you should seek professional advice.
The advice in this column is specific to the facts surrounding the question posed. Neither MLN nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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