We’ve had a few discussions this week with HMRC about incorrect PAYE codes so we thought we’d remind you to check yours.
The standard PAYE code is 1000L. This means that you can earn £10,000 of salary/wages tax-free in the year to 5 April 2015. The “1000” in the PAYE code refers to the tax-free element – simply add a zero to work out how much salary is tax-free.
If your code isn’t 1000L, you should check why it’s changed.
Why would HMRC change your PAYE code?
Any income you receive that is not paid as a salary/wage should get taxed. This can either be through your Self-Assessment Tax Return (SATR) or by adjusting your PAYE code.
HMRC usually look at last year’s SATR and/or your P11D (ie the form that summarises any non-cash benefits of your employment). If you received some income last year, they assume you’ll receive it again this year and adjust your PAYE code to get the tax.
The problem is when you received income last year, but you’re not getting it again this year – they’re taxing you on income that you’re not receiving.
This week, we’ve come across a few examples where HMRC had incorrectly reduced the amount of tax-free income in the code. These have included:
- Medical benefits received from an employer. However, our client hasn’t worked there since 2012, so isn’t receiving the benefits this year (or for the past two years)
- Savings income, despite the client not having any savings
- No tax-free allowance at all as HMRC expects the client to earn more than £120,000 (the limit where you lose your tax-free allowance). The client is actually expected to earn around half of that, so should have the standard code
I’ve received two codes – why’s this?
You may be sent more than one PAYE code if you have more than one job and/or pension. Usually, your tax-free allowance is allocated to one job and you pay tax on every penny you earn from the other source. If you’d like the tax-free allowance to be split across the jobs, you can ask. We spoke to HMRC recently to do exactly this for a client – their £10,000 tax-free allowance was being allocated to a job that won’t earn enough to use it all, so they’d be paying too much tax during the year.
I’ve got a code and I don’t understand it – what do I do?
If you’re registered for Self-Assessment online, you can view the code and the workings.
Alternatively, just ask us and we can explain it to you.
If you would like to arrange a free meeting with a Liverpool accountant to discuss your PAYE code, either at our office or at your premises, please contact us on 0151 724 3960 or by email at [email protected].
Alternatively, you can use our website contact form.
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Added by Jon Davies