As we reach the middle of April, you should have received your PAYE tax coding notice for the 16/17 tax year. This will be the code your employer uses to work out the tax deducted from your salary. While most will put this on their ‘to file’ pile without a second glance, it’s worth taking note of what the notice is telling you.
£11,000 – personal allowance – 1100L
As of 6th April 2016, the personal allowance – the amount which can be earned without paying any tax – was increased to £11,000. For tax coding, that means a standard tax code will be 1100L.
If your tax code isn’t 1100L then there’s something else in your tax code. This is usually explained on the notice but deciphering what this is can often be a tricky task.
Non-standard tax codes
The following are common reasons why your tax code may not be the standard 1100L:
- Benefits – you received healthcare, a company car or dental insurance from your employer. That’s taxed as a benefit in kind and the tax is collected by restricting your personal allowance.
- Underpaid tax – if you’ve underpaid tax in previous years, HMRC will seek to collect it through this year’s tax code. Again, that means a restriction in your personal allowance.
- Other income – if you have another source of income (such as a state pension), your personal allowance be restricted through your tax code to account for the other income using up a portion of the personal allowance.
- Property income – if you receive income from property, you can elect for the tax relating to this to be taken from your tax code. Again, the personal allowance is restricted.
- Tax liability – if you submit a tax return, you can elect for the liability to collected through your PAYE coding in the next tax year.
Getting it right
There are a lot of variables which can be into your tax code. It’s important to check it and make sure it’s right. HMRC don’t always get it right and if it results in an underpayment of tax, it’s up to you to make good on that.
Don’t just put it in your pile, make sure your code makes sense.