When Your Tax Code Might Change
Starting a new job or joining a new employer often triggers a tax code change, sometimes resulting in an emergency tax code being applied temporarily. Emergency tax codes, such as W1, M1, or X, are used when HM Revenue does not have complete information about your income, and these codes result in tax being calculated on a non-cumulative basis for each pay period. Once HM Revenue receives the necessary details, they will issue an updated tax code to your employer or pension provider.
If you get new perks from your employer, like a company car or health insurance, your code will change to reflect the tax due on these benefits. Company benefits can also affect your tax code and the amount of tax deducted from your pay.
If you have a second job or other job, your tax code may be adjusted to ensure the correct amount of tax is deducted from each source of income. Other income, such as rental income or untaxed income, can also affect your tax code and may require you to complete a Self Assessment Tax Return.
Changes to your Personal Allowance, perhaps through marriage allowance transfers, will update your code. Changes in personal circumstances, such as marriage or moving to a different region, can also trigger a tax code update. Employers and pension providers must notify HMRC when your circumstances change, so your tax code can be updated.
HMRC might also change your code if they discover you’ve paid too much or too little tax in previous years. Unpaid tax from a previous year can reduce your current tax-free allowance.
If your code is wrong, you may pay too much or too little tax, and you should contact HM Revenue to correct it. Cumulative tax codes calculate your tax based on your total earnings for the year, while emergency tax codes use only the current pay period. Tax deducted from your pay is based on your tax code, pay period, and any untaxed income or benefits. If you have untaxed income, you may need to complete an assessment tax return to report it to HM Revenue.
Pension providers use your tax code to deduct the correct amount of tax from your pension payments. Both your employer or pension provider are responsible for applying the correct tax code and notifying HM Revenue of any changes.
I once received a P800 tax calculation showing I’d overpaid by £340. The cause? An incorrect tax code that had been applied after changing jobs mid-year.
