People should check the code on their payslips as it could save them £1,000s, says Money Saving Expert Martin Lewis.
The code is used by employers or companies providing a pension to determine how much money is taken off workers' pay or pensions. But he warns in his latest Money Saving Expert newsletter those who use the wrong tax code could be paying too much or too little.
It means you could be entitled to get cash back if you have overpaid, but it could also mean you may have to pay some money back back if you have underpaid, reports the Mirror Online.
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It is the employee's responsibility to ensure their tax code is correct. It determines how much of your pay should be taken off and given to HMRC.
The code is made up of several numbers and a letter, with 1257L used by most people who are employed or have a pension. Different numbers and digits will affect your work or pension situation and how much cash will be taken by the Inland Revenue.
They tell your employer or pension provider how much tax-free money you receive in that tax year.
The code 1257L allows £12,570 as income you are not taxed on.
A tax code can be found in a variety of ways including:
- on a "Tax Code Notice" letter from HMRC
- on your payslip
- on HMRC's app
- by checking your tax code online on your personal account
Your tax code should be updated by HMRC if your income changes. The information is provided by your employer.
HMRC could have incorrect information which will result in the wrong tax code being issued to you. But it is up to you to contact them if you think it is wrong.
You can use the tools to check your code on the government's website. Here you can update your employment details and tell HMRC about any income changes which could impact your tax code.
HMRC will send you either a tax calculation letter, P800, or a Simple Assessment letter if you believe you have overpaid tax and it will explain how. A request for a refund can be done online but requires a Government Gateway user ID and password.
If you don't have one, a National Insurance (NI) number or two of the following will be sufficient.
- a valid UK passport
- a driving licence issued by the DVLA (or DVA in Northern Ireland)
- a payslip from the last three months or a P60 from your employer for the last tax year
- details of your tax credit claim
- details from your Self Assessment tax return (in the last two years)
- information held on your credit record if you have one (such as loans, credit cards or mortgages)
You will receive a Simple Assessment letter if income taxis owed tax which cannot be automatically taken out of your income.
And if you owe HMRC £3,000 or more tax must be paid on your state pension.
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