Most people spend their whole lives never even thinking about their tax codes. Generally, they reckon it’s just someone else’s problem to sort out. The beauty of the Pay As You Earn (PAYE) tax system is that, for the most part, you don’t really have to worry about it. Everything happens automatically, with the right tax taken out of your pay each month and forked over to HMRC by your employer.

At least, that’s how it’s supposed to work. The thing is, the system occasionally has a few loose cogs in it, and they can throw your finances into an uncontrolled tailspin if you’re not paying attention. If you’re claiming your yearly tax refunds – and you really should be – then the things you don’t know about your tax code could really cost you. Here are a few pieces of top tax code trivial to sink your teeth into:

1) 80% of UK taxpayers don’t know what the top rate of Income Tax is.

The tax you’re paying depends on 2 basic things: what you’re earning and where your Personal Allowance is set. That second piece of information is one of the main reasons to keep tabs on your tax code. Once your Personal Allowance is used up, you start paying tax - up to a scary 45% at the very top rate. Here’s what the tax bands and thresholds look like for 2019/20:

  • Personal Allowance: Up to £12,500 tax-free.
  • Basic rate: Earnings from £12,501 to £50,000 taxed at 20%.
  • Higher rate: Earnings from £50,001 to £150,000 taxed at 40%.
  • Additional rate: Anything over £150,000 taxed at 45%.

2) Almost half of us don’t know how to work out our Personal Allowance.

A shocking 46% of people don’t know how to read their tax code. To find the amount of money you can earn before you start paying tax, check the number in your code and multiply it by £10. For instance, for the 2019/20 tax year most people will have a standard tax code of 1250L, meaning they can earn £12,500 before the taxman lays a finger on it. The L at the end just means that there are no other special circumstances HMRC considers about you.

Keep in mind that there are lots of other possible tax codes you might be on, particularly if you work in unusual ways. If you’ve got more than one job, for instance, you’ll have more than one tax code to go with them. Only your “main” job will use your Personal Allowance, though. That means you might well be paying tax from the very first penny on your other one.

3) Oldies are more clued up about tax.

With tax, it seems the longer you’ve been in the game, the better you know the rules. People who’ve been working for most of their lives tend to have the best grip on how the tax system works. That means they’re in a better position to spot when there’s a problem with their tax codes, or to grab a refund opportunity that the younger types might miss. By contrast, taxpayers in the 18-24 bracket are most likely to lose out on their refund cash or land themselves in hot water with the taxman.

4) Income is income in the taxman’s eyes.

There are a lot of new ways to earn a little extra cash these days, and people are starting to wake up to the opportunities. Even so, about 39% of people still aren’t as tax-smart as they need to be about some of this stuff. Take social media, for instance. When you’re earning as an “influencer” on a platform like Instagram, the taxman could well decide you’re running a business. If you’re doing enough of it, or doing it often enough, he’ll definitely start sniffing around your finances for some tax. The same goes for things like running sponsored content on your social media pages. If it walks like a business and quacks like a business, it’ll get taxed like a business.

4) More people than ever before don’t have, or need, tax codes.

Self-employment’s still on the rise, hitting a record high of 4.9 million people working for themselves as of March 2019. Since the self-employed use Self Assessment tax returns to report their income to HMRC instead of PAYE, they generally don’t have a personal tax code.

That said, things can get muddy if you’ve got a PAYE job, but earn some extra on the side – like through renting out a property or running a decent-sized eBay business. In those cases, you’ll find yourself reporting your self-employment income separately via Self Assessment, while still having a tax code for your PAYE job.

5) HMRC might change your tax code.

There are a few reasons why HMRC might tweak your tax code from time to time. For instance, when you claim a tax refund, they might assume that the expenses you’ve claimed for will be the same next time and alter your code to account for them. Your code can also be adjusted when the expenses or benefits from your job change, when your state pension or benefits go up or down or when you owe tax from previous years.

6) RIFT will get your tax code fixed if it’s wrong.

The problem with HMRC altering your tax code after you’ve claimed a refund is that they aren’t seeing the whole picture. For most people, the expenses they can claim for change every year. That means the tax you pay will still be wrong after the adjustment. When you’re with RIFT, though, there’s nothing to worry about. Once your refund claim’s complete, our Tax Codes Compliance team contacts HMRC to check that your code hasn’t been changed incorrectly. We’ll also send you an email to confirm what your correct code is, so you can spot if it gets changed later.

7) Never ignore a letter from HMRC about your tax code.

When HMRC changes your tax code, they’re supposed to send you a letter to let you know what they’ve done. If you get one of these, always check with RIFT. The taxman’s been known to get his wires crossed from time to time, so it’s always better to let us check his homework for you. If your new code’s wrong, we’ll make sure it’s fixed before it does you any damage.

When you’re claiming your refunds through RIFT, there’s no extra charge for checking and fixing your tax code, whether you’ve had a letter from HMRC or not. It’s all part of the service. Any time your code changes or just looks wrong, give us a shout and we’ll get to work. We’re the UK’s leading experts at tackling the taxman, so you’re always better off with RIFT.