:: Tax Codes ::

52 Ways To Save Tax #24

save taxBack in 2010, the Chancellor changed the personal allowance rules for anyone earning more than £100,000 per year.

For every £2 that you now earn above the £100,000 threshold, £1 of your personal allowance is removed. This means that high earners face an additional tax rate of 20 per cent on up to £22,000 of their income.

Keep reading to learn more and to find out how you can avoid this additional tax bill.

52 Ways to Save Tax – Part 24: Don’t earn over £100,000

For every £2 of income that you earn over £100,000 you will lose £1 of your personal allowance. Your personal allowance is zero if your income is £122,000 or above (tax year 2016/17).

If you earn £122,000 you will lose all of your £11,000 personal allowance. £11,000 of your income will then be taxed at 20 per cent and the £22,000 will have been taxed at 40 per cent. It all means that your marginal rate of tax on this portion of your income is a huge 60 per cent.

Dermot Callinan, UK Head of Client Advisory at KPMG, says: “It makes what its otherwise a progressive income tax system regressive.”

As wages go up, more and more taxpayers are falling into this trap. Estimates suggest that more than a million taxpayers will lose some or all of their personal allowance by 2018/2019.

Patricia Mock, a tax director at Deloitte, points out that as the personal allowance has risen since 2010 (from £6,475 to £11,000) the band of income on which this 60 per cent effective rate is paid has widened.

What you can do if you earn just over £100,000

To avoid paying an effective rate of 60 per cent on a small portion of your income, there are some steps you can take.

Firstly, you can top up your pension. By making an increased pension contribution you can reduce your ‘adjusted net income’ to under £100,000. You can use unused annual allowances going back three tax years to increase the amount you wish to contribute if you need to.

Ms Mock from Deloitte adds: “If you fall into the relevant income bracket, then sheltering your income by making a large pension contribution is a very practical way forward.”

Another way that you can reduce your adjusted net income is to make a charitable donation. Charitable donations are deducted from your income and can help you to bring your earnings below the £100,000 threshold.

Both these options will help you to cut your earnings to under £100,000 and you will avoid paying a marginal tax rate of 60 per cent on up to £22,000 of your income.

Does claiming a tax rebate affect your eligibility to come back to the UK?

Tax rebate work in the UK

Does claiming a tax rebate affect your eligibility to come back to the UK?

There are a number of reasons why you may be able to claim a UK tax rebate. You may have had too much tax taken from your pay. You may have stopped work part way through a tax year. Or, you may have paid too much tax having completed a tax return.

A common reason for claiming a tax rebate is if you have worked in the UK for part of a tax year, and then you spend the rest of the year living and working in another country.

Our guide looks at claiming a tax rebate if you live abroad, and whether it affects your eligibility to come back to the UK.

If you leave the UK you may be able to claim a tax rebate

If you have worked for part of the tax year in the UK and then you leave then you may be able to claim a tax refund.

Your income is likely to have been taxed assuming that you were going to be working in the UK for the whole tax year. Your tax code is likely to have been such that your tax-free allowances were spread over a 12 month period. So, if you work part of the year in the UK and then head overseas, you may be eligible to get some of the tax you have paid in the UK back.

Claiming a tax rebate does not automatically affect your eligibility to return to the UK

It is important to note that claiming a tax rebate does not affect your eligibility to return to the UK. Just because you have claimed some tax back does not mean that you are prevented from returning to live and work in the UK – either in the same tax year or in a different tax year.

You should always check your visa and rights of residence in the UK. These are separate to your tax affairs and determine whether you are allowed to legally live and work in the UK.

Returning to the UK in the same tax year

If you were to return to the UK in the same tax year that you left (even if you had claimed a tax rebate) you would once again start to pay tax on any earnings. You would be given a tax code and tax would be deducted.

Even if you have claimed a tax rebate for that tax year, your eligibility to return would not be affected. Any underpayment or overpayment could be calculated at the end of the tax year and you will either receive a tax bill or a tax rebate, depending on whether you have paid too much or too little tax.

5 Things You Should Know About the 1100L Tax Code

Tax Codes phone tax formIn April 2016, the main UK tax code changed. Our guide tells you everything you need to know about the brand new 1100L tax code.

Keep reading to find out more.

  1. The 1100 reflects the change in the Personal Allowance

Your Personal Allowance is the amount that you can earn each year before you have to pay income tax. In the 2015/16 tax year this amount was £10,600 but in the 2016/17 tax year it will rise to £11,000.

  1. Most people will have the tax code 1100L in the 2016/17 tax year

The rise in the Personal Allowance to £11,000 means that most people can earn £11,000 before they start to pay any income tax.

1100L is the current tax code for most people born after 5 April 1938 and the 1100 refers to the tax-free Personal Allowance (£11,000) divided by 10.

  1. The letter L means you are eligible for the full Personal Allowance

If your tax code includes the letter L this means that you are eligible for the full tax-free Personal Allowance. In the 2016/17 tax year this is £11,000.

Your tax code may contain a different letter. Some of the common letters include:

  • M – you have received a transfer of 10% of your partner’s Personal Allowance
  • N – you’ve transferred 10% of your Personal Allowance to your partner
  • S – your salary/pension is taxed at the Scottish rate of income tax
  • Y – you were born before 6 April 1938 and are therefore entitled to a larger Personal Allowance
  1. Why you might not have the tax code number 1100

If you are eligible for the full tax-free Personal Allowance and you were born after 6 April 1938 you will probably have the tax code 1100L in 2016/17.

However, the numbers on your tax code could be different, for example if:

  • You haven’t paid income tax on part of your income (for example income from a second job)
  • Your employer provides other taxable benefits (for example healthcare or a company car) which have not been taxed
  • You have to pay tax that you owe from a previous year
  1. Why 1100L X could be your emergency tax code

If you have changed jobs and you haven’t provided your employer with a P45 from your previous job then you may be put on an ’emergency’ tax code. In the 2016/17 tax year, 1100L X is the most common emergency tax code.

Emergency tax codes are temporary. While you’re on an emergency tax code, you pay tax on all your income above the basic Personal Allowance (£11,000 for the 2016 to 2017 tax year). However, it doesn’t take into account any other allowances that you may be eligible for and so you should try to get onto the correct tax code as quickly as you can.

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.

Tax Codes for 2015-16

Tax Codes phone tax formIf you pay income tax via the Pay as you Earn (PAYE) scheme, your tax code changes each tax year. This means that from April 2015 it is likely that your tax code will have changed.

Making sure that you are on the correct tax code is vital or you may pay the wrong amount of tax. The wrong tax code means that you may pay too little and face a tax bill at the end of the year. Or, it could mean that you could end up paying too much  tax.

Our guide tells you everything you need to know about the tax codes for 2015-16.

How you work out your tax code

There are two steps to working out your tax code:

  • Step 1 – Total up your tax allowances and reliefs. This may include your Personal Allowance (£10,600 in tax year 2015/16) and any married couples or blind person’s allowance
  • Step 2 – Take away your deductions. This will include any income tax you owe from a previous tax year, any pensions/benefits you receive without tax having been deducted and any taxable income that you warn ‘gross’

The amount that remains is the amount of tax-free income you can earn in the 2015-16 tax year.

Your tax code is worked out by dividing the amount of tax-free income that you can earn by 10 and adding a letter appropriate to your circumstances. For example, if you are entitled to the full Personal Allowance in 2015/16 and you have no deductions your tax code will be 1060L.

The 1060L tax code

In the 2015/16 tax year one of the most common tax codes is 1060L.

This will be your tax code if you were born after 5 April 1938, you receive the full Personal Allowance and you have no other allowances or deductions. This means that you can earn £10,600 in the tax year 2015-16 without paying any tax.

It is worked out by dividing the amount of tax-free income that you can earn (£10,600) by ten and adding the letter ‘L’, meaning you are eligible for the full Personal Allowance.

You may also have the 1060L tax code if you are on an emergency tax code

Occasionally, you may be put on an emergency tax code. This often happens when:

  • You start a new job and your employer does not have your P45
  • Your tax code has changed during the tax year
  • You have started a new job having previously been self-employed

Each year the emergency tax code is set and in tax year 2015-16 it is 1060L.

It is important that you or your employer provides all the necessary information to HMRC if you are on an emergency tax code. If you don’t you could end up paying the wrong amount of tax.

You should remember that if your tax code in 2015-16 is 1060L it does not automatically mean that you are on an emergency tax code. Many millions of people will also be on the 1060L code for the right reasons.

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.

1000L – Everything You Need To Know About Your Tax Code 2014/2015

Are you one of the millions of people whose tax code for 2014/2015 is 1000L? If you pay your tax through PAYE and you receive the full tax free Personal Allowance, this may well be your tax code for the 2014/2015 tax year. 1000L is also the ‘emergency tax code’ for the 2014/2015 tax year. Watch the following 2 minute video and read this article to find out everything you need to know about the 1000L tax code

The 1000 in your tax code

Your Personal Allowance is the amount of money you’re allowed to earn each year before you pay tax.  On April 6, 2014 the Personal Allowance increased from £9,440 to £10,000. This means that most people can earn £10,000 before they start to pay any income tax.

The number in your tax code helps you to work out what your Personal Allowance is. You simply multiply the number on your tax code by 10.

In the 2014/2015 tax year, many people will have the tax code 1000L. This means you can earn £10,000 – the basic Personal Allowance – before you have to pay any income tax.

‘L’ tax codes

If your tax code features numbers and then the letter ‘L’ it means that you are eligible for the basic Personal Allowance (£10,000) in the 2014/2015 tax year. Your tax code may be 1000L.

If your tax code ends in the letter ‘P’ it means that you are between the age of 65 and 74 and you are eligible for the full Personal Allowance (tax code 1000P). If your tax code ends in ‘Y’ it means that you are over the age of 75 and you are eligible for the full Personal Allowance (tax code 1000Y).

Why 1000L may be your ‘emergency’ tax code

If HMRC doesn’t have sufficient information about your income, they may issue your employer or pension provider with an ‘emergency tax code’.  An emergency tax code 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 (£10,000 in tax year 2014/2015).  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 2014/2015 tax year, the emergency tax code is 1000L.

However, if you have the 1000L tax code it doesn’t 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.

Tax Code 1000L

52 Ways To Save Tax #1

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

Tax Codes phone tax formIf you pay any income tax via the Pay as You Earn (PAYE) system then you will have a tax code. Your tax code tells your employer or pension provider how much income tax to deduct from your earnings.

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.

5 Dumb Reasons Why People Don’t Claim Their Tax Rebate

Have you paid too much tax? If so, you may be eligible to claim a tax rebate (or ‘tax refund’) which may be worth hundreds or even thousands of pounds.

However, millions of pounds of tax rebates go unclaimed each year for a range of reasons. We’ve put together a guide to five of the most common reasons why people are missing out on reclaiming thousands of pounds of their own cash. Keep reading to make sure you avoid these mistakes.

It is too much hassle

Most people assume that claiming back tax will be a lot of hassle. However, the process is actually more straightforward than you may think. If you think you have paid too much tax you simply have to telephone HMRC or send them a letter explaining why you think you have overpaid.

If you don’t want to deal with HMRC yourself, there are a range of expert ‘tax rebate’ services who will process your claim on your behalf. Sites such as Tax Fix can help you to reclaim your overpaid tax and take the hassle out of your claim.

It is too late

Don’t assume that it is too late to make your tax rebate claim. You normally have up to four years to make a claim for overpaid tax.

If you’re a self assessment taxpayer you have until 5 April 2014 to make a claim for tax you overpaid in the tax year 2009/10. You can claim overpaid tax from the 2010/11 tax year until 5 April 2015.

If you’re a PAYE taxpayer the deadline to make your tax rebate claim for the 2009/10 tax year is 5 April 2014. If you want to claim for the 2010/11 tax year you have until 5 April 2015.

Tax rebates are just for foreigners

Many UK residents are under the mistaken impression that tax rebates are only for foreigners who work in the UK for a short time.

In reality, anyone who has worked in the UK could be due a tax rebate. There are lots of reasons that you may have paid too much tax, and we’ll outline some of these next.

I don’t think I am eligible

Don’t assume that you have paid the right amount of tax or that you aren’t eligible for a tax rebate. There are lots of reasons why you may have paid too much tax. These include:

  • You had more than one job
  • You were on an emergency tax code for part of the tax year
  • You only worked for part of the tax year
  • Your employer used the wrong tax code
  • You are a student and didn’t complete the P38S form
  • Other income taxed through your tax code has reduced since you told HMRC about it

I don’t have the right forms

Many people try to apply for a rebate and give up when they find that they don’t have a P60 or P45.

However, it is possible to obtain duplicates of these forms and other information you need to make your claim. Again, a tax rebate claims service can give you advice and help you in this regard.

Are you paying the right amount of tax on your rental income?


If you are a landlord and own a rental property, you probably have to pay tax on your rental income. However, a new campaign by HM Revenue and Customs is targeting up to 1.5 million landlords who may have failed to pay or underpaid the tax that they owe.

HMRC estimates that landlords are underpaying by around £500 million each year. So, we look at when you have to pay income tax and what the repercussions are if you don’t pay the tax that you owe.

How to work out if you should pay tax on your rental income

Many landlords earn significant income from rental property, particularly if their homes are in London or the South East. The graph below shows the average rental income in the UK regions and even in the areas that generate the least rental income landlords can expect to earn in excess of £6,000 a year from rental income.

 Average monthly rents in UK

If you earn rental income then the tax you will pay is worked out as follows:

1. Add up all the rental income you receive from your rental property/properties

2. Add up all your allowable tax expenses (as detailed below)

3. Take your allowable expenses from your income

Your allowable tax expenses include mortgage interest payments, lettings agent’s fees, buildings insurance, repairs and maintenance to the property, ground rent and service charges.

If you are an employee on PAYE and your net profit from property is under £2,500, you do not have to complete a self-assessment tax return.  Your tax code can be altered to claim the tax you owe.  You will have to complete HMRC form P810 every year.

If you are not on PAYE, or it your net profit from property is above £2,500, you will have to complete a self-assessment tax return.  If your net profit from property is under £77,000 you can group all the income and expenses as one figure on your tax return.

If your total income from UK property is over £77,000 (20012/13) or more in a tax year you must declare it on the property pages of your Self Assessment tax return and show your expenses separately.

HMRC targeting landlords who haven’t paid the right tax

If you have not paid tax on your rental income then you may be able to take advantage of an 18 month tax amnesty. HMRC have announced that penalties on unpaid tax will be reduced for those landlords that come forward and have warned that anyone who fails to pay tax could face criminal proceedings.

Marian Wilson, head of HMRC Campaigns, said: “All rent from letting out a residential property or holiday home has to be declared for income tax purposes. Telling us is simple and straightforward.

“We appreciate some people will have made honest mistakes, and some may not be fully aware that the rent from a property is taxable, and that is why it always makes sense to talk to us so we can help. It is always cheaper to come forward voluntarily and pay the tax you owe, rather than wait for HMRC to come calling.

“The message for all landlords owing tax is simple – it is better to come to us before we come to you.”