Last year, 7 million people had the wrong tax code and, therefore,
had the wrong tax taken from their salaries. There are 40 million employees in
the UK, so it is a minority……but that’s no consolation if you’re one of those 7
Why might you be paying the wrong tax?
Well, it’s because HMRC has the wrong information about you.
A couple of years ago, HMRC decided to do something about this,
and introduced a new dynamic tax coding system. What this means is that,
instead of waiting until the end of the tax year, HMRC updates your code as
soon as they hear your circumstances have changed. They’ll get this information
from returns filed by you, your employer, or any other person that’s paying you
money. This means that they can change your tax code straight away.
For example, this information could include:
- a change in salary
- a change of company car and other benefits from your job
- income from another source, eg rental properties or dividends
- income from a second job
- payments to pensions.
HMRC are trying to keep on top of
this, but they still make mistakes. Therefore, it’s well worth checking your
tax coding, and particularly now at the start of a new tax year.
If you don’t get it right at the start of the year, you’ll be paying the wrong tax for the next 12 months. That could lead to either a payment or a refund at the end of next year, and it’s better to get it right now.
So, how do you check this?
You can actually have a look at your own personal tax account online.
Everyone has one – if you haven’t already accessed it, you can do so at www.gov.uk
That will show you exactly how your tax code has been calculated, and therefore you can see whether it’s done correctly.
For example, you should check if there is any income in there that you don’t recognise… such as a car that you haven’t got?
What are the main mistakes HMRC make? The mistakes include:
- assuming you have two jobs, and therefore splitting your tax-free allowance
- not including pension tax relief
- including jobs you no longer have
- not reflecting your decision to have your marriage allowance moved to your spouse
- incorrect benefits in kind from your employer
- incorrect assumptions on the dividends you’ll receive from shares from within the company, because they’ll look at what you have last year and assume the same again.
So, it’s well worth having a look. If any of the information is wrong, let HMRC know so they can update it asap.
If you do have any queries, please do get in touch, and avoid being one of those 7 million people who have to pay extra tax at the end of the year!
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If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant
• You can ring us on 0151 380 8080
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