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Here Come Those Tax Codes!

Now there are two occasions during the year when the Royal Mail are flat out delivering letters.

One, as you have probably rightly guessed is when they are delivering all those letters addressed to Santa Claus c/o North Pole, and yes that would be December time. The other most busy period for the Royal Mail will be the month of January.

January is usually the time when the people at HMRC send their customers, (yes that’s a term they use to describe us Taxpayers, customers! – wouldn’t it be nice if we could take our custom elsewhere!), the annual brown envelope that contains the Notice of Codings, or Tax Codes as they are more commonly referred to.

Who is actually issued with a Tax code? – well, virtually everyone over the age of 16 who have joined the HMRC Club, by leaving school and making their living in the outside world. The exception really are self-employed people who do not need a Tax code, as their Tax contributions are paid through the Self-Assessment Tax Return system.

The must-thing to do when you receive a Notice of Coding from HMRC, is to at least look at it. It’s amazing how many people out there do not actually read it. But more specifically, you should always be checking it to make sure it is the right Tax Code that has been issued to you. Never assume just because it has been issued by HMRC it will be right. Yes, in majority of cases it will be right, but there are also a substantial number issued (probably about 1 million each year), that will be just plain wrong.

Now if you are one of these unfortunate ones issued with an incorrect Notice of Coding, it will mean that the actual Tax you will pay through the PAYE system as result of this Tax code, will be either too much or too little. This will all come out in the wash after the end of each Tax year. If you have paid too much Tax, then as the cowboys in the American Wild West would say ‘Yahoo!’, you will get an unexpected Tax Refund!

If however, you have not paid enough Tax, then you will probably quickly do a Victor Meldrew impression and utter the immortal words ‘I just don’t believe it!’ (for you people who are not quite with it, Victor Meldrew is the fictitious character from the old classic TV Comedy Programme ‘One Foot in the Grave’. There is an extra Bonus point here if you can name the actor who played Victor Meldrew, – answer to be revealed at the end of this Blog!)

The Coding Notices can themselves sometimes be complicated and difficult to understand. But, it is up to you to check what HMRC has issued to you, is correct. Some people believe that they do not need to check their Tax code, as their employer will also have been issued with this Code and so will have checked this for them. Firstly, your employer has no such responsibility, and secondly all the employer is issued with is an instruction from HMRC to apply that particular Tax code to your earnings with them. The employer does not get a breakdown of your Tax Code, as the Notice of Coding shows when it is issued to you, and so they have absolutely no way of knowing if this is actually correct or not.

So, when you get your next Notice of Coding through the post, firstly check which Tax year it actually refers to. Then, you need to check the actual numbers on this. As starting point there should always be an entry referring to your Personal Allowance for the year. For a person under the age of 65, for this current Tax year 2012/13 this figure should be £8,105, and if the Notice of Coding is for the next Tax year 2013/14 (this starts on 6th April 2013), this Personal Allowance figure will be £9,440.

If your Notice of Coding has other entries on it, you must check all of these.

What other entries on the Notice of Coding can you expect? – Sometimes, you will be given some extra Tax Allowances. This could perhaps be due to pension payments you are making (but only if you are a higher rate Taxpayer), or it may be you are paying some professional subscriptions personally, or you may be using your own vehicle for use in your employment. But one thing is certain, the Taxman will not be giving you any extra Tax allowances just because he likes you! So, check these entries out, otherwise he could be asking for that shirt off your back!

Likewise, the Notice of Coding may contain some minus figures. This would indicate you probably have other sources of income, or are receiving benefits through your employment, such as company cars, medical insurance, and yes even a season ticket to watch Leeds United at Elland Road bought for you by your employer would also qualify as a benefit, and so be subject to Tax. I know there will be a lot of you out there who will dispute the point that surely watching Leeds United can never be classed as a benefit, but nonetheless rules are rules, and the Tax Legislation states that this is a benefit!

Once all the entries on the Notice of Coding have been totalled up (and again just check the maths on this each time), you will be left with a figure. This will then form the basis of your Tax Code for the year. The Tax to be deducted by your employer on each payday is then calculated using this code. Oh, I nearly forgot! Sometimes a Tax code can be a minus figure, or a K-code as it is known in the trade. This basically means you have more Taxable benefits than you have Tax allowances, and so you pay Tax on these extra benefits without any luxury of any Tax allowances.

Tax codes can be complicated and difficult to understand, but you must check them to make sure your Tax position will be in order. There is some reasonable information issued by HMRC on Coding Notices on their website for you to read up on, and so you can try and check your own Coding Notices.

Alternatively, if anyone wants to contact me at JCL (Jones Cooper Limited), I will quickly tell them Free of Charge, if your Tax Code sounds like it is the right one for their own circumstances.

And finally for you TV Quiz Boffins, the Victor Meldrew character in ‘One Foot in the Grave’ was played by Richard Wilson.


Rickey Cooper FFA, FMAAT, ATT
JCL – Jones Cooper Limited


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