Your tax code is one of the most important scraps of information to have on hand whenever you tackle HMRC. For one thing, it’s what lets your employer know how big a bite the taxman needs to take from your income. It might just look like a nonsensical mess of digits and letters at first glance, but it spells out crucial financial details like your tax-free Personal Allowance. For example tax code 1257L has replaced tax code 1250L for the 2021/2022 tax year. Your tax code can also spell a whole lot of trouble if you’ve been given the wrong tax code.

Once you understand what your tax code’s for, it’s important to realise that it’s going to change once in a while. For instance, any time the amount of income you can make before paying tax changes, the numbers in your tax code will change too. You can read our simple tax code guide for more information about this kind of thing.

Why do tax codes change?

The other thing to understand is that HMRC will sometimes change your tax code for other reasons. For instance, if you claim a tax refund, the taxman might change your code so that your expenses are taken into consideration in the future.

That’s not a bad thing in itself, but it can lead to problems if, like most people claiming refunds, your expenses vary from year to year. That’s why it’s so important to:

  • check your tax code on your payslip and kick up a fuss if it looks wrong
  • make a new tax refund claim every year to make sure you get everything you're entitled to

Of course, this is something we do automatically when we handle your refund claim – but if you spot a change you don’t understand in your tax code, always talk to RIFT. We’ll quickly be able to double-check it for you, and get it fixed if there’s a problem.

130,000 people have had their tax code changed

Unexpected tax code changes can be pretty scary (and occasionally painful) if you don’t know why they’re happening. In the last year, for instance, HMRC’s been busy changing the tax codes of over 130,000 people to grab more tax from them. That’s not far off twice the usual yearly number!

They’ve been doing this to claw back unpaid tax debts when they can’t do it any other way. During the COVID-19 pandemic, they slackened off a little on reclaiming overdue tax. Now, though, they’re tightening the reins again and tens of thousands of people are finding themselves with new tax codes that leave them with less money coming in.

What to do if you owe tax to HMRC

If you do owe a chunk of tax to HMRC, there are usually several steps to go through before they’ll do something as drastic as this. Most people will get a chance to choose a way of settling up on terms they can handle. At the very least, you’ll get a letter warning you that they’ve run out of other options and will be changing your code until the debt’s paid off. There are limits on how much they can change your tax code when you owe tax, but even so it’s an unwelcome and unpleasant experience when it happens.

As always, any time you spot a change to your tax code and want it explained or looked into and fixed, get in touch with RIFT. If there’s a problem, we’ll solve it. There’s no extra charge for this, of course. It’s all part of the year-round service you get when you claim your tax refunds with RIFT.

 

Check back for more news and updates from the UK’s leading tax experts.