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Tax Code Information

Tax Code

SmartWork utilises your tax code to calculate the amount of PAYE Income Tax that should be deducted from each payslip.

The standard tax code for the current (23/24) financial year is 1257L.

The tax-free amount of annual gross pay is determined by the number in your tax code. For instance, if your tax code is 1257L, you can earn £12,570 tax-free in the 2023-2024 financial year.

Obtaining your P45 from your most recent employer is advisable whenever you commence new employment.

The two most common tax code formats are the following:

1. Cumulative

SmartWork will calculate your PAYE Income Tax based on your total earnings for the financial year. This ensures that your tax is always up to date and allows them to identify any significant gaps in employment, which could result in a potential tax refund on your next payslip. Your payslips will display the tax code ‘1257L’ (or a different number if your annual tax-free allowance varies)

2. Week1Month1

SmartWork will only consider your weekly or monthly earnings when calculating PAYE Income Tax. They will not know your total earnings for the financial year, and this tax code will not detect any potential tax refunds. Your payslips will display the tax code ‘1257L X’ (or a different number if your annual tax-free allowance varies).

Additionally, there are other tax codes to be aware of:

BR: This represents ‘Basic Rate’ and entails a flat 20% deduction of PAYE Income Tax from your taxable pay on each payslip.

D0: This represents ‘Higher Rate’ and involves a flat 40% deduction of PAYE Income Tax from your taxable pay on each payslip.

D1: This represents an ‘Additional Rate’ and includes a flat 45% deduction of PAYE Income Tax from your taxable pay on each payslip.

0T indicates that you have no tax-free allowance, and PAYE Income Tax deductions will be at 20%. If your earnings are high enough, the deductions may increase to 40% or 45%.

K: This signifies that you have no tax-free allowance, and HMRC has used additional calculations to determine that you owe further tax. HMRC can give more guidance on the reasons for this.

HMRC may adjust your tax code during or at the end of the financial year if they anticipate that you will exceed certain thresholds.

Please note that your tax-free allowance decreases by £1 for every £2 that your adjusted taxable income exceeds £100,000. Your allowance will be zero if your taxable income reaches £125,000 or above (assuming the standard 1257L tax code).

Self-assessment Tax Returns

In some cases, like when your income exceeds £100,000, you will need to submit a Self Assessment tax return. You can check on the Government’s website here if you need to complete one. If you do not usually send a tax return, you must register by 5 October following the tax year you had the income.

Contact us if you need help with your self-assessment return; we’d be happy to help.

If you think your tax code may be incorrect

If you have any doubts about your tax code, it is advisable to reach out to HMRC directly. They will be able to verify their records, explain the rationale behind your tax code, and send us an updated tax code electronically if necessary. Typically, we receive tax code updates within 7 days of HMRC notifying you of the change.

Here are the contact details you will require: Phone: 0300 200 3300

The SmartWork Employer Reference: 034/VA10818

Why your tax code might change

HMRC directly issues tax codes. In the event of any changes in your employment situation or if you have multiple sources of income, it is possible that your tax code may be altered. HMRC has the authority to update your tax code under the following circumstances:

– If you begin to receive income from an additional job or pension
– If your employer notifies HMRC about any changes in the benefits you receive from your job
– If you receive taxable state benefits
– If you claim Marriage Allowance
– If you claim expenses that are eligible for tax relief

Furthermore, you may be placed on an emergency tax code if you switch jobs. If you suspect that your tax code is incorrect, it is advisable to contact HMRC directly. They will electronically issue any necessary updates to your code. To get in touch with them, you can use the following contact details:

Phone: 03002003300

PAYE Ref: 034/VA10818

How can I check my tax code or how much I have paid overall?

To check your tax code or the amount of tax you have paid overall, the most convenient option is to visit the HMRC website and utilize the Government Gateway facility. This online platform allows you to obtain a comprehensive overview of your tax situation.

If you have multiple jobs or various sources of income, it can be challenging to keep track of your tax code and overall earnings, especially if your tax code is non-cumulative. However, HMRC holds information on the tax you have paid if you are using the PAYE system, and the Government Gateway tax account enables you to easily monitor this information.

Using this service is typically faster than contacting HMRC directly. It provides details on your PAYE tax, year-to-date earnings, and National Insurance contributions. Additionally, the portal displays whether any additional tax is due based on your deductions thus far in the year and your current tax code.

To access this service, you will need to set up a Gateway login if you haven’t done so already. You can easily create an account by visiting this link: https://www.access.service.gov.uk/login/signin/creds.

Once you have entered your preferred login details, you will receive a Gateway ID. It is crucial to keep this information secure as you may require it to access your account in the future.