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PAYE tax codes and your tax refund

In the UK, every employee paid under the PAYE scheme is allocated a tax code by HM Revenue and Customs (HMRC).

This is usually in the form of a number followed by a letter suffix, though other ‘non-standard’ codes are also used. This code describes to employers how much UK income tax to deduct from an employee. The PAYE tax code is normally based on information provided to HMRC by the taxpayer or their employer. PAYE tax codes are usually adjusted once a year to take into account any changes made in the National Budget, but can be altered more often to reflect an employee’s circumstances. PAYE tax codes can be changed if someone has paid too much or too little tax the previous tax year, if an employee receives state benefits, or has non-PAYE income (for example, self-employed earnings). Changes in a PAYE tax code are to ensure the employee has paid the correct amount of tax by the end of each tax year.

PAYE tax codes are passed between periods of employment by a P45

, which is generated when a person leaves a job. If a P45 is mislaid or not supplied at the end of a period of employment, a P46 can be filled out in order to determine which tax code is applicable to a person. Between submitting a P46 and receiving the correct tax code from HM Revenue and Customs

, an employer will use the emergency tax code on a week 1 basis. In this case, tax will be calculated as if the employee is working in the first week of the tax year, and all previous earnings are ignored.

At the end of each tax year employers are required to send out a P60

which documents the total earnings and tax a person has paid within that tax year. Normally, the employer has deducted the correct amount of tax, negating the need to claim back tax. However, if there has been an error, an overpayment of UK income tax, claimimg tax back is generally the responsibility of the employee, not the employer and claiming tax back issomething we, The Taxback ServiceCompany, do every day.

If you are an employee then your employer must operate PAYE. This stands for Pay As You Earn. PAYE is a way of collecting your UK income tax and National Insurance as you go along rather than getting a large tax bill at the end of the year. UK income tax is deducted each pay day from your pay before you receive it. This means that at the end of the tax year, you should have paid the right amount of tax.

PAYE is only a method of collecting tax. If there are any errors and the wrong amount of tax is collected, you are usually liable to pay any unpaid tax. This is one reason for taking time to understand how PAYE works – you are more likely to spot errors and avoid underpaying or overpaying tax over a long period of time, both of which can have negative consequences for the taxpayer.

The key to paying the right tax as an employee is having the right PAYE tax code so it is important to check that the tax code your employer uses is the right one for you. If you are unsure, contact us as, if it is wrong, we may be able to source an income tax rebate for you.

Where your PAYE tax code comes from

The PAYE tax code used by the employer may come from a number of different places: they will either be calculated and issued by HMRC or by the employer using rules set out for them by HMRC. However, as the employer is not obliged to check the correctness or otherwise of a PAYE tax code and as HMRC themselves may not be aware of any errors in the PAYE tax code they issue, do not hesitate to contact us – we specialise in personal taxation matters and we are here to help you get back tax overpaid atany time in the last four years. As we say, our name – The Taxback Service Company – is what we do and what we excel at i.e. getting UK income tax rebates, UK income tax repayments for individual tax-paying employees throughout the UK.