Emergency Tax Codes

Emergency Tax Codes

When there’s a change in personal circumstances, often reporting this for tax pursposes is not our first thought. We’re busy thinking about how we are able to handle these changes, and informing those close to us if it affects them too. But it’s essential that we let those in charge know so that we pay the right amount of tax. If you have, for instance, started a new job or have gone from self-employed to employed, you will get what is known as an emergency tax code. In this article, we’re going to investigate what it means to be on an emergency tax code and in what situations it applies to you.

What kinds of emergency tax codes are there?

All emergency tax codes begin with 1250. They are as follows:

1250 W1 1250 M1 1250 X
This is a non-cumulative tax code meaning that it does not take into account any tax that has already been paid that tax year or any tax-free personal allowance that you have. This particular code will be applied if you are paid weekly. This is also a non-cumulative tax code. As opposed to 1250 W1, this code takes effect if you are paid monthly. This code is a little different. It can affect a 1250 M1/W1 code seperately and
is generally to be used if you apyment rate is either not standard (ie you get paid at varying intervals) or if your payment rate is indeterminate.

For less common occurences, you might want to watch out for BR or OT codes. BR means “Basic Rate” and will usually be applied when you have an additional source of income that has used up your tax free allowance. It indicates that everything else you pay will be at the basic 20% rate.

OT may be used if your employer is not prompt about updating HMRC about your tax situation. It will not take any personal allowance into account.

Why might I be put on an emergency tax code?

As mentionned earlier, the reason that you will likely but on one of these codes is due to a significant change in circumstances as it pertains to employment. It usually denotes that the government is aware that your tax situation needs to be updated, but they
don’t yet have enough information to say how much you should pay. It usually only applies for a very short amount of time when:

  • You start a new job
  • When you go from going self-employed to employed
  • When you are getting company benefits or state pension

In each of these cases, once you have provided more information about your work, an accurate tax bracket can be determined for you to follow afterwards. This period will usually only last a month or two, or until you can supply the necessary information. The
best way to do this is through the relevant PAYE document (P45, P60, etc) which your employer or former employer should be able to help you with.

What does emergency tax mean for me?

If you are in a position to be subject to emergency tax, you will often end up paying a higher rate of tax than you ought to for the period that emergency tax in enforced. You can rectify this matter by contacting HMRC independantly to inform them that you think
you have overpaid in tax. Alternately, HMRC will assess how much tax you have paid each tax year without your input, and if they believe that you have overpaid, they will send the value of the overpayment to you without you having to contact them.

It certainly can be quite the inconvenience for you once you have started a new job for instance as you won;t always have the additional credit to endure the cost of starting/getting to work. Be
assured that as long as you keep a record of your payments and demonstrate how much you have paid and should have to pay, you should always be reimbursed for the inconvenience.

Other points to consider

The primary way that you’ll know if you have been put on an emergency tax code, aside from calculating it from your salary, if by looking at your monthly salary statement as you will see the above codes there if used.

If you are in one of the situation where emergency tax is applied, it is worthwhile looking out for it if it being there is going to make a difference to your ingoings and outgoings.

When it comes to how much you may be missing out on; basic-tax rate payers (those earning up to £50,000) may miss out on a total of £2,500 over the 2020-2021 tax year. Those in the high tax bracket (£50,0001 to £100,000) may be charged up to £5,000.
These are exceptional circumstances and you would never normally expect to pay anything is this region if you can rectify your figures with HMRC first.

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