Tax codes - it's all a letters game
WITH the new financial year upon us, millions have received new tax codes. This is the second of a two-part guide from www.lovemoney.com to help check that you are on the correct code and that you aren't paying too much - or too little...
Last Friday, April 6, a new financial year began. As a result, millions of people should have received new tax codes.
The ins and outs of tax codes may not be the most fascinating topic, but it is important. If you are on the wrong code you could find yourself underpaying throughout the year and be hit with a huge bill come 2013, or be overcharged and left out of pocket each month.
After covering the L, K and T codes last week, this is what you need to know if you are over 65, have a second job or are starting a new role:
P and Y pensioner codes
If you have a low or middle income and are between 65 and 74 years you will be placed on a P code, enabling you to have an income (after allowances such as donations or pension contributions) of £10,500 before you pay any tax. If you are 75 or over, this allowance increases to £10,660 - signified by a Y code.
However, for every £2 you earn over £25,400, you'll lose £1 of your personal allowance until it reaches the basic rate - £8,105. Note that the state pension is paid untaxed - though it is taxable.
Second jobs and pensions
You will usually receive a tax code for each source of income you receive. If you have more than one income, you will be asked to state which is your main source, and this will have the appropriate level of personal allowance applied to it.
All other income will be taxed without any allowance. If you pay at basic rate, additional income sources will receive a BR code, higher rate payers will get a D0 code and those liable for the additional rate will get the D1 code.
An NT code will come through if no tax is to be taken. This could be because your total income is less than your personal allowance, or you are a self-employed contractor liable to pay National Insurance, but not income tax.
When starting a new job you may find yourself on an emergency tax code, which is used when HMRC does not have enough information about you.
The emergency tax code for 2012-13 is 810L - the same as the basic personal allowance code. This normally ensures you receive the basic amount of monthly tax-free pay, but it does not take into account any other relief or allowances.
You may also see W1 (weekly pay) or M1 (monthly pay) codes. This signifies that you are being taxed as if it is the first week or month of the financial year. However, if you start work part of the way into the year, a W1 or M1 code could see you overpay in tax - as it is spreading your personal allowance over too many months.
However, when you hand over your P45 or P46 to your new employer, your tax code should change - and you should be reimbursed with any losses. If you get to the end of the financial year and still haven't been reimbursed, you should get it back in a refund.
If you think your tax code is wrong tell HMRC as soon as possible so it can be corrected. You will need to have your tax reference and National Insurance number - which can be found on your payslip.
To catch up on part one of this series and find out more about the L, K and T tax codes, go to the 'Jobs' tab.
This article appeared in Reading Chronicle 13 Apr 12