You could pay the wrong amount of tax if your details are not up to date
HMRC has issued a reminder to taxpayers that the responsibility lies squarely with them to ensure a crucial piece of information is spot-on. Keeping your basic details with the tax authority current is essential, otherwise you risk paying the wrong amount of tax. Incorrect information on your file could result in you overpaying or underpaying tax on your earnings from work or your pension.
Should you fail to pay enough tax over a prolonged stretch, you might find yourself facing a hefty bill. You can check many of the particulars that HMRC holds about you via your online personal tax account or through the HMRC app. Setting up your personal tax account can be done on the Government website, while the app is available for download from either the Apple app store or Google Play.
One aspect of your records that is absolutely vital to get right is your tax code. This code dictates how much tax ought to be deducted from your income.
‘Everyone is responsible’
A HMRC spokesperson said: “Everyone is responsible for ensuring their own tax code is correct, and they can manage and update their tax code quickly and easily on our app or via their online tax account.” The group said it typically adjusts your tax code using details supplied by your employer or pension provider.
If you are confused about what your tax code means, there is a Government website tool to explains what the numbers and letters mean. The most common tax code is 1257L, which means you’re entitled to claim the full personal allowance on your earnings.
Anyone with the full allowance can earn up to £12,570 a year without paying tax on this amount. One scenario where you could pay the wrong tax is if you are put on an emergency tax code.
‘You could pay the wrong amount of tax’
This may happen when you move to a new job but your new employer hasn’t got hold of your previous earnings and tax information. Information on the gov.uk website explains: “If your new employer does not have your previous income and tax details, you’ll be paid using an emergency tax code. This is usually temporary.
“Usually, your tax is worked out based on your total income so far in that tax year. If you’re on an emergency tax code your tax is worked out based on what you’re paid in that week or month only.
“You get taxed as if you’re paid that amount every week or month of the year. This could mean you pay the wrong amount of tax.”
Emergency tax codes will end in either ‘W1’ if you are paid weekly, in ‘M1’ for monthly payments, or ‘X’ if your payday moves around. You may also see NONCUM on your payslip too.
To prevent this or if you find yourself in this predicament, it’s a good idea to hand over your P45 from your previous job to your new employer, as this contains the details about your past tax situation. If you weren’t provided with one when you left your old job, you can request your former employer to issue you one.
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