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The 1060L Tax Code Explained

Lady and treeIn the 2015/16 tax year, millions of taxpayers in the UK will have the tax code 1060L.  This tax code applies to you if you receive the full tax free Personal Allowance while 1060L is also the ‘emergency tax code’ for the 2015-16 tax year.

Keep reading to find out everything you need to know about the 1060L tax code in 2015 and 2016.

What is the ‘L’ tax code?

In the UK, every person is allowed to earn a certain amount of money without paying any income tax. This is called your ‘personal allowance’.

In April 2015 the Personal Allowance increased from £10,000 (in the 2014/15 tax year) to £10,600. This means most people can earn £10,600 before they start to pay any income tax.

If your tax code features numbers and then the letter ‘L’ it means that you were born after 5 April 1938 and you are eligible for the basic Personal Allowance (£10,600) in the 2015-16 tax year.

If your tax code ends in ‘Y’ it means that you were born before 6 April 1938 and you are eligible for the full Personal Allowance. If your tax code ends in ‘M’ or ‘N’ it means that you’ve either transferred or received 10% of your Personal Allowance to/from your partner.

Working out your tax code

To work out your tax code, you first have to add up your tax allowances.  For most people this will be just the basic Personal Allowance although you may also have age related allowances or a Blind Person’s Allowance.

You then have to total up the income that you haven’t paid tax on. This may include untaxed savings interest, income from a second job or untaxed company benefits.  These are your ‘deductions’ and they are taken away from your allowances.

What is left is the amount you can earn in the tax year before you pay any income tax. You should the divide this number by 10 and add the letter which fits your personal circumstances.

For millions of people the steps to working out their tax code will be:

  1. Allowances – Basic personal allowance of £10,600
  2. Deductions – none
  3. £10,600 divided by 10 = 1,060
  4. Born after 5 April 1938 and eligible for full Personal Allowance = letter L
  5. Tax code therefore 1060L

Why 1060L may be your ‘emergency’ tax code

If you have recently changed jobs, you have more than one job or you haven’t sent your current employer a copy of your P45, HMRC may not have sufficient information about your income to send your employer or pension provider a correct tax code. Here, they will issue an ‘emergency tax code’ which is used on a temporary basis while HMRC establish what your correct tax code should be.

If you have an emergency tax code it will ensure that you receive the basic tax free Personal Allowance (£10,600 in tax year 2015/6).  However, it doesn’t take any other allowances into account.

The emergency tax code is set each year by HMRC and is a number followed by the letter ‘L’.  In the 2015/16 tax year, the emergency tax code is 1060L.

Note: If you have the 1060L tax code it doesn’t automatically mean you are on an emergency tax code. For example, if you are eligible for the basic Personal Allowance and have no deductions you may have the same tax code.

How To Avoid Your New Employer Seeing Your Earnings

If you’ve applied for a new job or you’re about to start with a new employer then you will have to provide some information about your tax status. This will help your new employer to ensure that you’re on the right tax code and that you’re paying the right amount of tax.

But, what if you don’t want your new employer to know what your previous salary was? Perhaps you want to keep that information confidential? Or, maybe you entered into long and protracted negotiations about your new salary and you don’t want your employers to know that you’re on a much higher wage?

If you want to avoid your new employer seeing your earnings, one possible way is to not give the employer your P45 and to use a ‘Starter Checklist’ instead. Keep reading to find out more.

What your P45 says

When you stop working for an employer you will receive a P45 tax form. Whether you leave voluntarily, you are made redundant or you are fired you will receive a P45 and this form contains various pieces of information including your PAYE reference code.

Crucially, your P45 also shows how much you earned and paid in tax during the tax year.

Your P45 will be in 3 parts. When you join a new employer you should ordinarily give parts 2 and 3 to the new company. This allows them to see how much tax you have paid and to put you on the correct tax code.

If you do not want show your employer your P45 because you want to keep your previous wage confidential then you can get around giving them your P45. Instead, you should send parts 2 and 3 to your tax office along with details of your new employer. If you do this straight away it will help you to ensure that you are put on the correct tax code.

If you don’t provide your new employer with a P45 then they will have to put you on an emergency tax code until they obtain the correct details from HMRC. If you have told the tax office your details then this should be sorted out quickly. If not, you could overpay tax until the end of the tax year and then you may have to claim a tax refund.

Use a ‘Starter Checklist’ instead

In the past, if you did not provide a P45 form to your new employer then you would have had to complete a P46 form.

Now, the P46 form has been replaced by the ‘Starter Checklist’. If you don’t provide your P45 to your employer as you don’t want them to know your previous salary your new employer may give you a ‘Starter Checklist’ to complete. This contains important information that affects the amount of tax you’ll pay, including:

• Whether this is your first job
• If you’ve been claiming Jobseeker’s Allowance or Employment and Support Allowance
• If you have another job
• If you are paying off a student loan

The Starter Checklist will help your employer to allocate a tax code and work out the tax due on your first pay day. It is therefore beneficial if you can complete the Starter Checklist or provide the relevant information your employer has asked you for as soon as possible before your first pay day. If you do, your employer will know what tax code to use and it is more likely that you’ll pay the right amount of tax from day one.

Finding Your Important Tax Information

When submitting your tax return, starting a new job or enquiring about your tax and other benefits you’re likely to need certain pieces of information.  These may include your National Insurance number, your Unique Taxpayer Reference (UTR) number or your tax code.

If you’ve mislaid any of this information, our guide will help you find it.

Finding your National Insurance Number

If you can’t remember your National Insurance number or you’ve lost your National Insurance number card, you may be able to find it on some of your official paperwork.  You can often find your National Insurance number on:

  • Your payslip
  • A copy of your Self Assessment tax return
  • Your P60 (end of year tax statement)

If you still can’t find your National Insurance number, you can ask HM Revenue and Customs (HMRC) to confirm it to you.  You can do this by calling the National Insurance Registrations Helpline (on 0845 915 7006) or completing and returning a CA5403 form.

HMRC will confirm your National Insurance number by post.

Finding your Tax Code

If you’re employed or between jobs, you’ll find your tax code on your P45 (the statement of earnings/tax you receive when you leave an employer).  You will also find your tax code on your ‘PAYE Coding Notice’, usually sent to you by HMRC before the start of each tax year.

If you’ve lost your P45 and want to find out your tax code you should contact HMRC and give them your National Insurance number and tax reference number (see below).

If you’re starting your first job, your employer will ask you for the relevant information to allocate a tax code and work out the tax due on your wages.  HMRC will then process the information passed on from your employer and, where necessary, revise or issue you with a tax code.

If you get a company or personal pension, you’ll find your tax code on your PAYE Coding Notice.  You’ll also find your tax code on notices and payslips from your pension provider.

Finding your Unique Taxpayer Reference (UTR) Number

Your UTR number is a unique number provided by HMRC so that you can complete your tax return.  It has ten digits (for example, 15863 35637) and it is used by HMRC to identify you.

If you can’t remember what your UTR number is, you can normally find it on:

  • Your tax return – your UTR number should be on your tax return
  • Your ‘Welcome to Self Assessment’ letter (SA250). This letter also explains how your UTR number is used
  • Your ‘Notice to File a Tax Return’ – if you submit your tax return online, you should receive a reminder that your self assessment tax return is due.  Your UTR number will be found on this Notice to File document
  • Your ‘Statement of Account’ – your UTR will also appear on your HMRC statement

You will often also find your UTR number on other formal correspondence that you receive from HMRC such as a payment reminder.

What Everyone Should Know About Your P45

Are you an employee who has stopped working for an employer?

If so, you are entitled to receive a P45 form from your previous employer.  Whether you resigned, left to work for another employer or you were made redundant, your previous employer should have provided you with a P45 form when you left.

Our guide tells you everything that you need to know about your P45.

What is a P45 and what information does it contain?

You receive a P45 from your employer when you stop working for them.  It is a form which details a full record of your earnings and any tax that has been deducted from it in the current tax year.

Your P45 shows:

  • The date you left your employer
  • Your tax code
  • Your PAYE reference number
  • Your total earnings from that employment in the current tax year
  • How much tax was deducted from your earnings in that tax year
  • Your National Insurance Number

The four parts of your P45

Your P45 will come in four parts.

Part 1

Part 1 of your P45 will be sent to HM Revenue and Customs (HMRC) by your employer.  The remaining parts – parts 1A, 2 and 3 will be given to you.

Part 1A

You keep part 1A for your own records.

Parts 2 and 3

When you start to claim Jobseeker’s Allowance, or when you start with a new employer, you give Parts 2 and 3 to the Jobcentre or to your new employer.

Make sure that you look after your P45 as if you lose it, you won’t be able to get a replacement.   If you have lost your P45, your new employer may give you a P46 form to complete or ask you for the relevant information.  This is so they can pass these details on to HMRC in order that that they can give you a tax code for your new employment.

The law

Remember, that your employer should give you a P45 as a matter of course when you leave their employment.  You are entitled to a P45 by law and so don’t be fobbed off by your employer.

How To Get A Copy Of Your P60

One of the most important tax forms that you will need is your P60.  Your P60 summarises your pay and the tax that you have paid in a particular tax year.

Our guide looks at what your P60 is for, when you should receive one and how to get a copy of your P60.

What is your P60 and when do you receive it?

Your P60 is a form which shows your total earnings from a job or pension in the previous tax year.  It also shows how much tax you have paid.  If you have several jobs or pensions then you should receive a P60 for each of them.

You should receive a P60 at the end of every tax year – usually around April or May.  You are entitled by law to receive a P60 from your employer if you are still working for them at the 5th April.  Ask your employer to provide you with a P60 if you haven’t received one.

What you need your P60 for

There are various reasons that you may need a P60:

  • To apply or renew tax credits
  • To claim a tax rebate
  • To complete your self assessment tax return

Many banks and building societies also request your P60 when deciding whether to agree a loan or mortgage application.

Paper and electronic P60s

From the 2010/11 tax year your employers can provide your P60 on paper or electronically.  You will have to give your consent to your employer to receive an electronic version as you must have the ability to securely view and print a copy.

Getting a copy of your P60

If you have lost your P60, you should first approach your employer to ask them if they can provide you with a copy.

Employers are obliged to keep records of pay for three years and so they should be able to provide you with a copy of your P60 for the last three years.  The P60 will be clearly marked as ‘duplicate’.

HM Revenue and Customs (HMRC) cannot provide a duplicate of your P60.

If you need a copy of your P60 from more than three years ago, it is unlikely that you will be able to get one.  Your employer may be able to provide you with a ‘statement of earnings’ on company headed paper which should act as a replacement for a P60.

Alternatively, you should contact your Tax Office.  Your tax office will be able to provide you with alternative, official information regarding the amount of tax that you paid.

Your P45, P46 and P60 Explained

Your P45, P46 and P60 are the three most common tax forms you are likely to encounter.  Every employee is entitled to a P45 and P60 by law while you may also be asked to complete a P46 form when you start work with a new employer.

Our guide explains these common tax forms.

Your P45

You receive a P45 from your employer when you stop working for them.  It shows how much you have earned and how much tax you have paid in the current tax year.

A P45 form includes information such as:

  • Your tax code and National Insurance number
  • The amount you earned in the current tax year
  • How much tax your employer has deducted in the current tax year
  • The date you stopped work for that company

A P45 has four parts.  These are Part 1, Part 1A, Part 2 and Part 3.

Part 1 is sent to HM Revenue and Customs.  You receive the other three parts.  Part 1A is kept for your own records and parts 2 and 3 are given to your new employer (when you start a new job) or to the Jobcentre (if you are claiming Jobseeker’s Allowance).

Your P46

If you are starting your first job or if you are taking on a further job in addition to your present employment, you may not have a P45 form.  In this case, your new employer may ask you to complete a P46.

A P46 form includes information such as:

  • Whether you have another job
  • Whether this is your first job
  • Whether you have been claiming benefits such as Jobseeker’s Allowance

In order that your new employer can work out what tax code to apply – and therefore how much tax to deduct – it’s important that you complete a P46 form as soon as you can.

Your P60

At the end of every tax year you should receive a P60 form.  It is a summary of your pay in the previous tax year and any tax that has been deducted. It is a legal requirement that your employer provides you with a P60 if you were working for them at the end of the tax year (5th April).

You will need your P60 if:

  • You want to claim back any overpaid tax
  • You have to complete a Self Assessment tax return
  • You want to apply for tax credits

While most people receive a paper version of their P60, a company is now allowed to send an electronic version if you have given your consent to receive it in this format.  You must have access to secure facilities in order that you can look at your P60 and print a copy for your records.

Are You Keeping The Correct Tax Records?

If you pay tax in the UK it is vital that you keep a record of the tax you pay.  You should also keep any records relating to your income and outgoings.  You will need these to complete your tax return or to answer queries from HM Revenue and Customs (HMRC) about returns you have already submitted.

Why do I need to keep records?

If you complete a Self Assessment tax return, HMRC may have queries relating to your return.  They may also demand to see documents to confirm the figures you have declared.

So, you have to keep adequate tax records in order to answer these queries.  If you don’t, you may have to pay a penalty.

What tax records do I need to keep?

There are various different records you should keep depending on whether you are employed, self-employed, a pensioner or a director.  Common records you will have to keep include:

  • Income from employment – documents including your P45, P60, form P11D and information about any redundancy payments.  You should also keep details of benefits in kind, tips or gratuities and lump sum payments not included on your P45 or P60
  • Records of expenses – receipts and records of any business expenses that you have paid out of your own pocket
  • Pension records – documents including your form P160, P60 and details of other pensions (including the State Pension)
  • Savings and investment income records – building society and bank statements and passbooks, interest statements, tax deduction certificates, dividend vouchers and unit trust tax vouchers
  • Property income – records of rent received from property and the expenses you have paid

If you are self-employed you will also have to keep documents such as:

  • a record of all your sales and takings
  • a record of all your purchases and expenses

How long must you keep your records?

You are required to keep all your tax records for a certain period in case HMRC needs to check your tax return.

If you send in your tax return on or before 31 January you have to keep your records for a further year after this deadline.  For example, for a 2010-11 tax return filed on or before 31 January 2012, you must keep your records until 31 January 2013.

If you send in your tax return after 31 January you must keep your records for 15 months after the date you sent it in. For example, for a 2010-11 tax return filed on 28 February 2012, you must keep your records until 31 May 2013.

4 Common Tax Forms You Should Know

If you are an employee, there are certain tax forms that your employer is obliged to provide you with.  These forms contain important information about your salary, benefits and the tax you have paid and so you should know what information each of these forms contains.

P45

You receive a P45 from your employer when you stop working for them.  It is a record of your pay and the tax that has been deducted from it from the start of the tax year to the date of the end of your employment.

Information contained on a P45 form includes:

  • your tax code and PAYE (Pay As You Earn) reference number
  • the date you left your employment
  • your total earnings in the current tax year
  • your National Insurance number
  • how much tax you paid on your earnings

A P45 is made up of four parts.  Your employer sends Part 1 to HMRC and gives you Parts 1A, Part 2 and Part 3.  You keep Part 1A and you give Part 2 and Part 3 to your new employer or to the Jobcentre if you are claiming Jobseeker’s Allowance.

You should automatically receive a P45 when you cease working for an employer.  You are entitled to it by law.

P11D

Your employer uses a P11D form to tell HM Revenue and Customs about the value of any ‘benefits in kind’ that you have received during the tax year.  ‘Benefits in kind’ are perks that effectively increase your income, such as:

  • private health insurance
  • a company car
  • interest free loans

Your employer will only declare them if you have earned at least £8,500 in the year, including the value of the benefits.  Your employer works out the value of each benefit before reporting it to HMRC.  You will also receive a copy for your records.

P46

There are some instances where you won’t have a P45 when you start a new job.  For example, you may be starting your first job or you may be taking on a second job without giving up your other one.  In this situation, your new employer will give you a form P46 to complete.

A P46 contains information such as:

  • whether you have got another job
  • whether you have been claiming Jobseeker’s Allowance
  • whether you are paying off a student loan
  • whether this is your first job

P60

Your P60 is the summary of your pay and the tax that has been deducted from it in the tax year.

Your employer should give you a P60 to keep at the end of every tax year (which runs from 6 April to 5 April the next year). Again, you are entitled by law to receive a P60 if you are still working for your employer at the end of the tax year.

Your P60 is useful if you have to complete a Self Assessment tax return or two claim back any tax you have overpaid.  You may also need your P60 to prove your income to a lender if you are applying for a mortgage or other loan.

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