In the UK, your tax code can change for several reasons, usually related to updates in your income, allowances, or benefits. Here’s a breakdown of some common reasons:
Changes in Income
If your income changes, for example, because you got a new job, a pay rise, or started receiving a pension, your tax code may be adjusted to reflect your new earnings. HMRC uses your tax code to calculate the amount of tax you should pay, so any income change may prompt a code update.
Changes in Personal Allowances
The personal allowance (the amount you can earn before paying tax) may vary due to your age, your income level, or other factors. For example, high earners (those making over £100,000) have a reduced personal allowance, which will affect their tax code. Similarly, changes in legislation may increase or decrease allowances, affecting tax codes across the board.
Claiming Benefits or Allowances
If you start claiming benefits or allowances (such as the Marriage Allowance, any Disability Allowance, or the Personal Savings Allowance), your tax code may change to reflect these adjustments. For example, if you receive Marriage Allowance from your partner, your tax code may increase to reflect the additional allowance.
Marriage or Civil Partnership Changes
If you get separate from your spouse, this can impact your tax code, especially if you or your partner claims Marriage Allowance.
Receiving Benefits from Your Employer
If you receive taxable benefits from your employer, such as a company car, medical insurance, or other non-cash benefits, these are typically subject to tax. HMRC will adjust your tax code to include these benefits, as they’re considered part of your income.
Changes in State Benefits or Pensions
State benefits or pensions, like the State Pension, are subject to tax. If you begin receiving a new pension or an increase in benefits, your tax code will adjust to reflect this additional income.
Underpayment or Overpayment of Tax in Previous Years
If HMRC finds that you overpaid or underpaid tax in a previous year, they may adjust your tax code to collect or refund the difference. For example, if you underpaid, your tax code may be reduced to collect the owed amount over the course of the tax year.
Starting a Second Job or Side Income
If you have multiple jobs, your personal allowance is usually applied to one job, while any additional income is taxed at the standard rates. HMRC may adjust your tax code for each job to ensure you’re taxed correctly based on total earnings.
Tax Code “Emergency” Adjustments
Sometimes, if HMRC doesn’t have up-to-date information, they’ll assign you an emergency tax code temporarily, usually while they wait for more details. This typically happens if you start a new job without providing your P45 or haven’t updated HMRC about income changes. Emergency codes are often temporary and adjusted once HMRC has the correct information.
Annual Tax Code Review by HMRC
HMRC conducts annual reviews to check whether your tax code is still correct, often around the start of the tax year in April. This may result in code changes even if nothing specific has changed for you.
It’s always a good idea to check your tax code notice when you receive it to make sure it reflects your current situation. You can contact HMRC directly if you believe it’s incorrect, but it may be easier to talk with your regular MAP contact.
The MAP Payroll Team
