Here’s your first part of a brand new series outlining 52 ways in which you can save tax. For the first part we look at a problem that results in millions of people paying too much tax: being on the wrong tax code.
1. Get Your Tax Code Right
HMRC issues your tax code based on information they have about your taxable income and allowances. So, if the information they have is wrong, you could be paying too much tax.
Getting the right tax code could save you a fortune in tax. Keep reading to find out more.
How to save tax by getting your Tax Code right
In many cases your tax code will be based on information HMRC has about the previous tax year. For example, if you had untaxed income such as rental income or a second job HMRC will try and collect the tax due on these earnings through your tax code.
However, if your income from such sources has fallen, HMRC may still be basing the tax you pay on the figures from the previous tax year. This means you could be paying too much income tax.
To make sure you pay the right amount of tax you should tell HMRC if you:
- get married or form a civil partnership
- start receiving a second or third income
- Start receiving taxable benefits such as private medical insurance or a company car
- Become or stop being self employed
You should also let HMRC know if other income that you get – such as savings or rental income – increases or reduces.
If you pay tax through PAYE but don’t normally complete a tax return you should contact HMRC with details of the changes to your income. HMRC may be able to change your tax code so that you pay the right amount of tax. If they do this you will receive a PAYE Coding Notice explaining the changes to your code.
However in some cases HMRC may ask you to complete a tax return and pay any extra tax through Self Assessment. HMRC will write and let you know if they need you to complete a tax return.
If your taxable income has gone down you may be due a refund.