Taxpayers urged to check your payslip to avoid HMRC ‘large deductions’ | Personal Finance | Finance
A tax expert has urged people to check their payslips to make sure their details are correct. If your details are wrong, you could end up overpaying tax by a large amount.
HMRC recently issued a warning that applies to all taxpayers. A spokesperson for the authority 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.”
Taxpayers can view many of their details through the online personal tax account or in the HMRC app. You can also use these services to tell HMRC if any changes in your situation. You can set up your personal tax account on the Government website, while you can download the app from the Apple app store or from Google Play.
Jo Adams, finance director at hybrid working experts Work.Life, explained how tax codes work. She said: “Tax codes are used to tell your employer or pension provider to withhold the right amount of tax from your wages and pensions when you get paid.
“If you’re a full-time employee, your payslip will likely have the tax code 1257L. The numbers in your tax code indicate how much tax-free income you get in that tax year. The ‘L’ means you’re entitled to the standard tax-free Personal Allowance of £12,570. This is the most common tax code for people who have one job or pension.”
When could you end up paying too much tax?
Ms Adams said one case where you could pay a lot more tax than you need to is if you have more than job or pension. She explained how this can happen: “If you have multiple income sources, each type of income gets assigned a separate tax code. However, the personal allowance can only be used once, and HMRC expects you to use it on your main job or pension.
“If you don’t tell HMRC about your additional income, they may tax them at the basic rate (BR) or higher rate (D0, D1), leading to large deductions.” There is also a risk your personal allowance could be assigned to the wrong type of income, again meaning you pay too much tax.
Ms Adams shared a simple tip to avoid this. She said: “This can be avoided by letting HMRC know as soon as you take up additional employment. You can also split up your tax-free allowance over multiple incomes, to avoid paying tax at a much higher rate on your second job.”
Another case where a simple oversight could lead to overpaying tax is if you change jobs and don’t give your P45 to your new employer. This important form shows how much tax you have paid in the current tax year
Ms Adams said: “The form includes important information for your new employer, which enables them to work out how much tax you should be paying for the rest of the tax year.
“If you do not provide a P45, you might be put on an emergency or temporary tax code (like 1257L W1 or M1). This means tax is calculated without your full allowance history, often causing overpayment until corrected.”
If you don’t have a P45 from your old job, you can request one from your previous employer, and then hand it in to your new employer, so your details can be updated.
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