Martin Lewis has issued an urgent warning to millions of working people across the country who may be on the wrong tax code and owed money from HM Revenue and Customs (HMRC). The consumer champion shared the details during the final episode of the current series of The Martin Lewis Money Show Live on STV.
The series finale was dedicated to helping people beat ‘March madness’ and upcoming price hikes on energy bills due to the removal of the £67 monthly rebate, increased broadband and mobile phone charges, and the ongoing cost of living crisis. The financial guru also explained that from April 6, people will be unable to make claims for the 2018/19 financial year.
But his first warning of the show focused on wrong tax codes and urged everyone paying tax needs to check if their code is correct because if there is an error, it could be worth “big money”.
Martin explained to a live studio audience in Liverpool and viewers at home: “Your tax code is a number that tells your employer or your pension provider what tax to deduct from your income. The most common one is 1257L and the way to work this out is you add a zero to the end which becomes £12,570 - your tax free allowance.”
He warned: “You need to check yours as millions of these are wrong and it is your responsibility to check them - not HMRC, it is not your employer’s responsibility, it is your responsibility to check it’s right.
“If it’s wrong and you underpaid they’ll come and they’ll want the money and that is a nightmare for people, but if it’s wrong and you overpaid, then you’re due the money back, but that deadline for 2018/19 is coming fast. This could be big money.”
David contacted the show to share that he followed Martin’s previous advice about checking tax codes and it turned out his wife had been on the wrong tax code for four years - she received a bumper refund of £2,585.
Below is everything you need to know about checking your tax code. Just remember that the current financial year ends on April 5, so you will only be able to claim back to 2018/19 until then.
Checking your tax code
The easiest way to do this is to look at your payslip. One you have a note of your Personal Allowance tax code, you can go to the GOV.UK website and use the online “Check your Income Tax for the current year" service. This tool, which covers the current tax year, can be used to check your tax code and Personal Allowance, and to see if a tax code has changed.
Other options available through this online service include allowing users to see an estimate of how much tax they will pay over the whole tax year. However, the service cannot be used by self-employed workers. The GOV.UK website explains: "You cannot use this service if Self Assessment is the only way you pay Income Tax.”
What the tax code numbers mean
The numbers in an employee’s tax code show how much tax-free income they get in that tax year, this is known as your Personal Allowance. You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed.
For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £30,000 per year, taxable income is £17,430 (£30,000 - £12,570).
What the letters mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance. The full list of tax code letters and what they mean can be found on the UK.Gov website here.
Most commonly used letters:
L - For an employee entitled to the standard tax-free Personal Allowance
S - For an employee whose main home is in Scotland
BR/ SBR - For a second job or pension
M - For an employee whose spouse or civil partner has transferred some of their Personal Allowance
N - For an employee who has transferred some of their Personal Allowance to their spouse or civil partner
T - When HMRC needs to review some items with the employee
If your tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, for example ‘577L W1’ or ‘577L M1’.
The tax code letter ‘K’ is used when deductions due for company benefits, State Pension or tax owed from previous years are greater than their Personal Allowance.
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