What are tax code reductions?

There may be some items in your tax code that reduce your tax free amount and so increase the amount of tax that you pay.

For example:

  • Receiving a state pension. The state pension is taxable but the Department for Work and Pensions do not have every pensioner on a PAYE system for making payments. Instead, any tax due is collected by reducing your tax free amount by the amount of state pension you receive for the year.
  • If you are employed and your employer provides you with benefits, such as private medical insurance or a company car, the value of those benefits may be taken off your tax free amount. This depends on how your employer accounts for benefits so it will not be the same for everyone. You will need to check with your employer, or if you we are doing your tax refund or tax return for you then we can find out this information.
  • If you owe tax for an earlier tax year your tax free amount may be reduced so that you can pay it back each month over a longer period rather than in one lump sum. We can help you agree this with HMRC if needed.
  • If you receive income that it is not possible to tax before you receive it, your tax free amount will be reduced by an estimate of that income. For example, if you rent out a property, HMRC might reduce your tax free amount by an estimate of your rental income, or if you receive interest, for example from a bank or building society account, where the interest is paid without tax deduction, HMRC will reduce your tax free amount by an amount of estimated interest.

You can find out more on our HMRC tax codes explained page, including what each individual letter and number means in your tax code. We can also provide more detail on tax code allowances and emergency tax codes to give you a full picture.

Whatever tax code questions you've got, give RIFT Refunds a call or email for the best tax advice in the business. In the meantime why not see if you are a due a tax refund with our simple test below.