Are you paying the right amount of tax?

It’s dull, it can be difficult to understand, and a hassle to correct when it’s wrong.  But checking your tax coding notice and ensuring that HMRC are only taking from you the correct amount of tax is extremely important.

“We have had cases recently of people contacting us, now that a tax year has begun and new rates are in play, asking why they are being deducted more tax, says Tax Manager Andrew Cowe.  “The answer lies in the coding notification HMRC send out well before the tax year starts, usually in January or February.   People need to check this when it comes through and query anything that doesn’t look right.  Most importantly, if in doubt take professional advice or even ring HMRC.  By their own admission they frequently issue the wrong codes.”

“Put simply, if your code is too high you will have less tax deducted during the course of the year.  Sounds great, until HMRC catch up with things and slap you with a ‘lump sum’ bill for the underpaid amount.  Don’t think for a moment, either, that because it’s their fault you won’t have to pay.  Officially everyone is responsible for their own tax affairs, HMRC will wash their hands of the problem.”

“Conversely, if the code is too low you will find HMRC deducting too much.  Whilst you can reclaim that, there is a deadline for doing so and it will involve contacting them.  This is frequently an extremely frustrating process, and although it is nice to receive a tax repayment, this only gets you back what you shouldn’t have had to pay in the first place”.

“If there is error things can still be corrected, basically as long as the code is right by the end of the tax year, then in most cases things will be corrected automatically.  But the sooner you act the better.”

Andrew Cowe, Tax manager, Brearley & Co