Oh, tax codes! How I used to loathe them when I first started training to be a tax advisor. They can be fiddly little things. If you get them wrong, the consequences can be quite severe. Your client might end up overpaying or, even worse, underpaying tax and at the end of the year be left with a large tax bill. As you can probably imagine, that client won’t be a happy bunny.
I am a trainee tax advisor working in a small tax consultancy near London สร้าง qr code. Having arrived in London from Germany 8 years ago for a gap year adventure, I could not have imagined that one day I would end up becoming a UK tax advisor. Nowadays, I cannot imagine a better job for myself.
For most of us, having an incorrect tax code means that we end up overpaying tax. You have probably heard or been warned of the dangers of having an emergency tax code. Guess what? The emergency tax code – 1000L in 2014/15 – is the code most of us have to ensure that we pay the correct amount of tax.
A tax code tells your employer how much money you can earn tax free each year so that they can deduct the right amount of tax from your pay. For most of us, this will only be our basic personal allowance which is £10,000 for the 2014/15 tax year. The tax code itself is your tax free earnings divided by ten and followed by a letter (mostly “L”) – hence the tax code 1000L. Unless you have additional earnings or untaxed income, this code will ensure that you get your full personal allowance and that roughly the correct amount of tax is deducted from your pay.
So what are the “dangerous codes” to watch out for? Basically, any code that is not 1000L requires a proper check. Below I have listed a few common ones:
1000L W1/ M1
W1/ M1 means week 1/ month 1. Normally, your tax position is recalculated every time you are paid taking into account your total income for the year to ensure that you receive your full personal allowance over the course of a tax year. However, if your employer uses a W1/ M1 code, they do not have enough information about your income before you started your job in order to calculate your personal allowance for the remaining tax year. Instead, you are given 1/12 or 1/52 of your personal allowance (depending whether you are paid monthly or weekly). However, this may not give you your full personal allowance if, for example, you had a lower or no income before you started your job and you may end up overpaying tax.