Emergency tax codes explained
How does an emergency tax code affect me?
When you leave a job, your employer should give you a P45. Your P45 shows how much you've earned and how much tax you've paid so far in the current tax year. It also gives your tax code, which your new employer will need. If you don't get a P45, your new employer will have to use an emergency tax code until they can find out what tax code you should be on.
An emergency code assumes that you are only entitled to the basic personal allowance. It does not take into account any other tax code allowances and tax code reductions and reliefs you may be entitled to, such as blind person’s allowance. So the emergency tax code for 2016/17 is 1100L, which is actually the same as the normal code for the vast majority of people.
Emergency tax codes are only ever meant to be temporary. If you're on one and don't know why, contact RIFT for help.
The main problem if you find you’re on an emergency tax code is that your wages may get taxed at 50%. It will never be more than this as there is a rule that in any one month the amount collected under PAYE cannot exceed 50% of the total pay – but that’s not much consolation as most people can’t afford to miss half their take home pay. This happens because normally PAYE is worked out on what’s called a “cumulative basis”. This means that when your employer takes the tax away from your wages they take into account:
- all the tax you have paid in the tax year to date,
- what amount of your salary falls under each tax bracket,
- any personal allowances you are due
Under emergency tax codes your employer does not have this information so you pay tax on everything with no allowances and as if you have paid no tax this year.
Tax codes really aren't as scary or complicated as they often seem. You just have to keep an eye on yours, and be prepared to take action if it changes. If you're with RIFT, of course, we'll take care of that for you, and fix it if the taxman gets it wrong.
Whatever tax code questions you've got, give RIFT Refunds a call or email us for the best tax advice in the business. In the meantime why not see if you are a due a tax rebate with our simple test below.
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