Tax code error on your P60 could mean you are owed £1,500 | Personal Finance | Finance
Taxpayers across the UK have been urged to check their P60s to confirm they are contributing the correct amount of tax. According to experts at Work. Life, recent figures suggest an average of over £1,500 could be reclaimed per person in overpaid tax.
However, it’s crucial to actively claim this as HM Revenue and Customs (HMRC) doesn’t automatically issue refunds. As reported by the Daily Record, Work.Life’s finance director Jo explained more.
She warned that your tax code, which instructs employers or pension providers on the precise tax amount to deduct from salaries or pensions upon payment, could be wrong resulting in thousands in overpayment.
For those in full-time employment, the common tax code on payslips is likely to be 1257L.
The numerical part represents the amount of income you can earn tax-free within the tax year, and “L” signifies eligibility for the standard tax-free Personal Allowance, currently set at £12,570.
This tax code is typically assigned to individuals with a single job or pension. However, the following errors could result in an incorrect tax code:
- Failing to hand over a P45 when starting a new job
- Juggling multiple jobs or pensions
- Neglecting to sign up for self-assessment if it’s necessary
Checking your tax code
To verify your tax code, simply check your payslip. Once you’ve noted down your Personal Allowance tax code, head to the GOV.UK website and use the “Check your Income Tax for the current year” online service.
This facility, applicable for the ongoing tax year, allows you to review your tax code and Personal Allowance, as well as monitor any changes to your tax code. This online service also allows users to get an estimate of their tax for the entire year.
But, it cannot be used by self-employed workers, as detailed on the GOV.UK website, which says: “You cannot use this service if Self Assessment is the only way you pay Income Tax.”
Tax code numbers
The figures in an individual’s tax code represent the amount of income they can earn tax-free within that year, known as the Personal Allowance. To calculate the total tax-free earnings available, simply multiply the tax code number by 10.
Take, for instance, a person with the tax code 1257L is allowed to earn up to £12,570 before tax comes into play. With annual earnings of £30,000, their taxable income would be £17,430 (£30,000 minus £12,570).
Tax code letters
The letters within a tax code indicate the individual’s circumstances and how these impact their Personal Allowance. A comprehensive list describing each tax code letter can be accessed on the UK Government’s official site here.
A brief overview of the most frequently encountered letters includes:
- L – This is for an employee who is entitled to the standard tax-free Personal Allowance
- S – This applies to an employee whose main residence is in Scotland
- BR/ SBR – This is used for a second job or pension
- M – This is for an employee whose spouse or civil partner has transferred some of their Personal Allowance to them
- N – This applies to an employee who has transferred some of their Personal Allowance to their spouse or civil partner
- T – This is used when HMRC needs to review some items with the employee
If your tax code ends with “W1”, “M1” or “X” – W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, for example “577L W1”, “577L M1” or “577L X”.
If your tax code starts with a “K” – Tax codes that start with “K” mean you have income not being taxed another way and it’s worth more than your tax-free allowance.
For most people, this happens when you’re:
- Paying tax you owe from a previous year through your wages or pension
- Receiving benefits you need to pay tax on – these can be state benefits or company benefits
- Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension – even if another organisation is paying the untaxed income to you.
