Make sure you keep more of your wages
Checking the Pay As You Earn (PAYE) tax code that is applied against your wages could mean you pay less tax as you go along – and will help you identify if you are due to get a tax refund.
Your employer knows how much tax to take from your earnings because they apply a tax code that is given to them by HM Revenue & Customs (HMRC). They have no choice in the matter – any change to that code during a tax year will only happen if you intervene or if HMRC receive new information from someone else.
This tax year started on 6 April 2014 and you can earn up to £10,000 before you are due to pay tax for the year. Your £10,000 personal allowance is usually divided up equally over the year – for example, if you earn £2,500 by the end of June (up to one quarter of the tax year), you should have no need to pay tax. However, if you earned £3,000 over that three-month period, then some tax would be deducted from your pay, based on the £500 “excess” earned over the tax-free limit.
As explained above, the normal personal allowance is £10,000 and that gives a tax code of 1000L. Your tax code is shown on your payslip and if that is not your tax code, you should find out why.
For example, you could be over-paying tax if your code ends in W1 or M1. This means that your tax code assumes that your wages are going to be the same each week or month of the year. However, if you earn fluctuating wages, for example by working different hours, then you may not be using all your personal allowance and end up paying more tax during the year. If this is the case, then you can ask HMRC to give you a normal (cumulative) tax code; see details at the end of this article.
If you have more than one job at a time, HMRC will most probably allocate all of your personal allowance to your first job and ask your other employer to take basic rate tax (20%) from the income from your second job, by using a BR code. However, if you know that you will earn a relatively small amount in one or both of those jobs, you can ask HMRC to split your personal allowance to reduce the amount of tax deducted.
For example, if you work in a coffee shop throughout the year, earning around £80 a week, over the tax year you would expect to earn around £4,000. With your personal allowance set against this, no tax would be paid. Now, say, you take a job over the summer holidays that is going to pay £2,000 over the three months to 31 August 2014. If you do nothing, you will pay £400 tax on that summer job (because basic rate tax will be taken from it which is 20% of £2,000). To stop this deduction happening and then having to claim a tax refund, you could ask HMRC (contact details at end of this article) to split your personal allowance and set, say, £4,500 against your job in the coffee shop with the rest set against your summer job. Now, you would have no income tax deducted from either job, which means more cash in your pocket!
If you have more than one job, or think your tax code is wrong, do something about it. You could probably use that extra cash…
You can get more information on checking tax codes on our website.
To have your tax code changed, contact HMRC.