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Don’t overpay on your tax! Make sure you’re on the right tax code

by Kobus Van den Bergh | Jun 28, 2018
  • It’s understandable that when you look at your payslip the only number that catches your eye is your take-home salary. However, there is a particularly important combination of numbers and letters that shouldn’t be overlooked. It’s your tax code, and you need to ensure that it’s correct. Being on the wrong tax code could mean that you are paying significantly too much tax, and that’s something no one should ever be doing.
    Grabbing-money

    Understanding your tax code

    Your tax code consists of a combination of numbers and letters. It usually starts with a number and ends with a letter and is used by your employer to work out how much income tax to deduct from your pay or pension. Your employer receives your tax code from HM Revenue and Customs (HMRC).

    The amount of tax you pay is dependent on how much income you earn, how much tax you’ve already paid in the year, and your personal allowance. Your personal allowance is the amount of money you’re allowed to earn each tax year before you pay income tax. The standard personal allowance for 2018-2019 is £11,850, and anything above that amount will be taxed.

    Contrary to popular belief, your tax code may not be the same every year. It depends on what the personal allowance is for that year, how much you’re earning, and whether there have been any changes to your work circumstances.

    Have a tax-related question?

    What those numbers mean

    The numbers in your tax code represent the amount of tax-free income you’ll be receiving in the current tax year. Generally, you can find out what your taxable income threshold is by multiplying the number in your tax code by 10.

    For example, if you have the tax code 1150L, you can earn £11,500 before being taxed. Therefore, if you earn £30,000 per year, your taxable income will be £18,500.

    What the letters mean

    The letters in your tax code indicate your tax circumstances and the rate of tax that should be charged. These are some of the most common codes used for employees:

    Code

    What it means

    L

    This is the most common code. It means that you are entitled to the standard tax-free personal allowance.

    T

    This is used if your tax code needs to be reviewed. This could be because your estimated annual income is more than £100,000 or your tax affairs are complex.

    You can also ask for a T code to keep your personal details confidential.

    BR

    All your pay is taxed at the basic rate. This is because your allowance has been used up, which can happen if you have a second job or receive a pension while working.

    DO

    All your pay is taxed at a higher rate because your allowance has been used up.

    NT

    You pay no tax on this income. This code is only used in very specific cases.

    W1 or M1

    You’ll pay tax on all your income above the basic personal allowance. The most common reason for using this code is because you’ve started a new job. It could also be because you’re working for an employer after being self-employed or you’re receiving company benefits.

    What to do if you’re on the wrong tax code

    While most codes are usually correct, there are instances where the wrong tax code has been issued. This could be for several different reasons, such as:

    • You’ve recently changed jobs
    • You’ve started a second job
    • Your state benefits have changed
    • Your company benefits have changed
    • You are receiving additional income that isn’t taxed, such as rental income

    If your tax code is wrong, you could be owed a tax rebate. The first thing you need to do is contact your tax office immediately. They will be able to tell if you’ve underpaid on your taxes, in which case you will need to pay it back.

    If you’ve overpaid on your tax as a result of the mistake, you will need to submit a claim for a refund. You can claim back any overpaid tax at the end of any tax year for up to four years.

    Have a question about your tax refund?

    Get help claiming back your tax

    While it is possible for you to submit your tax refund claim on your own, the process can be time-consuming and stressful, particularly if your circumstances are complex. With our tax refund services, we can maximise your tax refund and ensure you receive it in the shortest possible time, in the simplest of ways.

    All you need to do is complete our online tax refund claim form and we’ll apply for your tax refund. What’s more, we’ll follow up on your behalf and even source the relevant documentation for you. We have a no refund, no fee guarantee, so if you don’t get your refund, you won’t owe us a cent.

    If you are leaving the UK or have already left, we can also help you transfer your tax refund or any other funds back home with our international money transfer service. We offer competitive exchange rates and a low service charge, providing you with a quicker and more secure way to transfer your tax refund back home.


    Have a question about your tax code or want to make a claim? For a free, no-obligation consultation, speak to one of our tax refund consultants on +44 (0) 80 8141 5503 or taxrefunds@sableinternational.com.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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