At this time of the New Year, you may have already received a letter from the HM revenue and Customs telling you that you have a new tax code. Well, if you have tried to contact the HMRC only for you to be kept waiting for ten minutes, you need not worry; you are in the right place.
So, what exactly is the purpose of this code?
A tax code is made up of numbers and letters and it is used to determine your category as a UK taxpayer. It tells the kind of tax relief that you are allowed to have, the expenses that the HM Revenue and Customs assumes that you incur and the benefits that you are entitled to. In most cases however, the code is mainly used to determine the taxpayers' allowances, and whether or not they are owed any rebates by the by the HMRC.
During the 2009/2010 and 2010/2011 financial years, the basic tax code was 647L. This allowed taxpayers with this tax code to have a tax-free allowance of 6475 pounds for the whole year. However, during the emergency budget of June 2010, all the ones that were ending in L were increased by 100 points, hence raising all those who were under 647L, to 747L. This meant that all those who were previously enjoying a tax-free allowance of 6,475 pounds, would now enjoy a tax-free allowance of 7,475 pounds.
It is not uncommon to find that you are having a tax code that is very different from what the majority of your colleagues have. These colleagues might be earning the same salary as you, and you might not see any particular reason why they should have a different code. However, it is important to note that the amount of salary that you earn is not the only thing that will affect the tax code that you will be placed in.
Despite the fact that you may be having a colleague that is getting the same salary as you, that person might be earning an extra amount from something that he or she does on the sides. Moreover, a person may be due a refund, thereby causing him or her to be given a tax code that is different from the other people who are in the same office and same rank with him or her. However, if you feel that you are in the wrong code, it is advisable that you contact your local HMRC office so that this can be sorted out.