Make Checking Your Tax Code Your New Year’s Resolution

by in December 30th, 2009

Uncategorized

The majority of people in employment pay tax, and a large number of those tax-payers have an incorrect tax code. The most common reason that people pay too much tax is that their tax code is incorrect. It may reflect a previous tax liability which may have resulted in a lower tax code and the code has not since been updated.

A profitable New Year resolution should be to check your tax code and get it corrected before April, when the next tax year begins.

What is a Basic Tax Code?

The basic tax allowance for everyone under the age of 65 for the year ending 5 April 2010 is £6435. That means you should not pay any income tax if you earn less than that amount. Your tax code should be 643 and will be suffixed with a letter, usually an L.

Basically your tax code when multiplied by 10 will indicate the amount you can earn tax free and the letter indicates the conditions which might apply to the tax code.

What is an Emergency Tax Code?

Often if you work a second job or if you fail to provide a P45 to your new employer you may be put on an emergency tax code. If you are put on an emergency tax code your tax free allowance will not be allocated to you and there is a good chance that you will overpay tax.

I am Over 65. What is my Basic Tax Code?

The good news is that those over the age of 65 can earn slightly more before having to pay tax on their income, whether it is earned from a part-time job, or unearned income from interest on savings. The personal allowance is £9490 and is usually suffixed with the letter P. The married allowance for those over the age of 65 is £6475.

What are Current tax rates?

The lower 10% tax rate has now been abolished and the rate of tax on the first £37,400 in the tax year 2009-2010 is 20%. A higher rate of 40% is due on taxable earnings over this figure.

Of course all these figures are subject to change each tax year, which begins on April 6, so make sure you get a new (higher) tax code to reflect the new allowances.

Further Reading:
1. The income tax system
2. Claiming back emergency tax
3. How to claim a tax rebate