It's the start of a fresh tax year and as the tax code is one of the things that will determine the amount of money that's paid into your bank account every month, it is vitally important that you check it's the correct one.
Checking your tax code is one of the things we urge employees to do regularly; it determines the amount of tax deducted from your salary under the Pay as you Earn, PAYE system. If your tax code is too high you will be paying too much tax each month. That directly reduces the amount you have to live on immediately and for every month this continues. The wrong tax code could also result in too little being deducted each month. You then could be in for a shock at the end of the tax year when you complete your self-assessment return or when it's discovered, as this will mean you will need to pay a tax bill or your tax code will be changed so you get a bigger deduction from your future pay, until your underpaid tax is repaid.
Lots of things can throw the tax code out of sync: changing jobs; moving from employed to self-employed or vice versa; changes to benefits in kind; moving between tax rate levels; errors; retirement; and, as this article shows, starting to take money from your pension.
If you complete a self-assessment tax return each year then this can be the trigger for a change in tax code and a correction of a wrong code that has applied during the tax year. But you don't have to wait to complete a tax return to change a wrong tax code; if you think your code is incorrect you can contact HM Revenue & Customs at any time.
Since the pension freedoms were introduced in April 2016, many more people are now accessing their pension benefits flexibly. This is one of the things that can throw your tax code out and put some people on an emergency tax code meaning they are paying much more tax than they should. For those who don't complete a tax return, this could go on for months before it is corrected.
Knowing what tax code you should be on and checking it when your circumstances change is a key part of managing financial wellbeing. The wrong coding can have a big impact on your cash in hand each month or give you a potential tax bill at the year end. So it is always a good idea to check your tax code regularly and as this article shows particularly where you have started taking money from your pension.
Tens of thousands losing out in overpaid pension freedoms tax James Phillips @PPJamesPhillips 6 April 2017 Tweet, Facebook, LinkedIn, Google plus Send to Comments Emergency tax codes for one-off withdrawals under Freedom and Choice are leaving savers significantly overpaying on their tax bills, when in many cases they should pay no tax at all. These savers are then failing to claim back the overpayment, leaving millions of