It’s that time again when HMRC start issuing tax codes for the upcoming tax year 2020/21. Have you received yours yet? Did you understand it? We are here to help!
It is wrong to assume that it is your employer’s responsibility to check the code is correct, it is simply their obligation to apply the code issued by HMRC. Therefore, you should be checking and understanding any additions or deductions HMRC have made to your Personal Allowance (tax free income). We are here to help you understand and are happy discuss with you.
Tax codes are becoming ever more complicated as HMRC look to deduct as much tax in ‘real time’ as possible. Directors may have noticed that dividend income is being factored into tax codes and those with multiple employers may want to assess how their allowances are split across them.
Common tax codes and what they mean:
1250L is currently the standard tax return meaning you are entitled to the full personal allowance.
M codes imply that the marriage allowance has been claimed, if you are unsure whether you qualify or would benefit from this allowance please get in touch.
0T codes mean that you do not have a personal allowance. This implies your income will exceed £125,000.
BR is often referred to as ‘emergency tax’. A new employer may use this in the absence of a P45 and this means basic rate tax is being applied to all this income.
We must also be mindful of the Making Tax Digital changes on the horizon. We are still awaiting a date for rolling out MTD to Income Tax as well as VAT whereby the annual Tax Return will be replaced by quarterly returns. We will of course be keeping our clients up to date with developments and we are on hand to help you transition across to MTD when the time comes.
Contact us if you're unsure about your tax code and the implications it has on your income.
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Equal Accountancy Ltd offers Accountancy and Bookkeeping services in Hemel Hempstead and surrounding areas across Herts, Beds and Bucks. We offer a range of services for Limited Companies, Self-Employed individuals and Landlords including Year End Accounts, Corporation Tax returns, Self-Assessment Tax returns, Payroll services, VAT returns, Bookkeeping and Company Secretarial. Get in touch today for a free, non-obligatory quote for your business needs.