How do emergency tax codes work?
When you leave a job, you're supposed to get a P45 form from your old employer. This form shows how much money you've earned and how much tax has come out of it in the current tax year. Without that information, your next employer won't be able to work out the right tax code for you. The chances are, you’ll end up with a temporary emergency tax code until the confusion's sorted out.
While they aren’t as big a problem as many people fear, emergency tax codes can still be a pain. For one thing, while they include your Personal Allowance, they don't take into account any other tax reliefs or allowances you might qualify for.
An example is the Blind Person's Allowance. If you’re entitled to that, it’ll show up on your tax code. If you’re on an emergency tax code, though, you could be losing a painful £2,870 off your tax-free allowance (using the figures for 2023/24).
The biggest problem with emergency tax codes is that it's possible to be taxed way more heavily than you should be. There's a rule that stops you from losing more than half of your PAYE earnings in any month, but that's probably not much of a consolation when you're overpaying unnecessarily.
This all happens because emergency tax doesn't take the tax you've already paid in the tax year into consideration, or how much of it falls into each tax bracket. This is on top of not including all those allowances and reliefs you might qualify for. Without including all that information in your tax code, you end up paying up each month as if you've paid no tax previously in the year.
Tax codes are something that most people are in the dark about, and it's so important to keep on top of them. Of course, with RIFT on your side you'll never have to worry about this. If you spot a change in your code and don't understand why it's happened, give us a shout and we'll sort it for you.
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