Britons urged to check payslips as HMRC could 'adjust your tax code' costing you thousands of pounds - are you affected?

Tax code errors are more commonplace than many realise and can occur for various reasons, including having multiple income sources or changing jobs.

The most common tax code for UK workers is 1257L, which indicates eligibility for the standard tax-free personal allowance of £12,570. This code appears on all payslips and helps identify which tax band an individual falls into.

If someone has been assigned the wrong tax band, they could have been overpaying their taxes for years, potentially leading to refunds worth thousands of pounds.

However, it's important to note that an incorrect code could also mean one has underpaid tax, in which case they would need to repay any outstanding amount to HMRC.

While most British taxpayers don’t need to file a self assessment tax return for the 2023-24 financial year as tax is automatically deducted from their wages (known as Pay-As-You-Earn, or PAYE), pensions or savings, there are many instances where people are nevertheless required to complete the document.

For those where the tax is not automatically deducted, or they earn extra untaxed income - or a high salary - filing a tax return is mandatory.

With most personal tax thresholds frozen until 2028, more people paid through PAYE may find themselves forced to file a tax return this year because their total taxable income has jumped above £150,000 – a salary threshold at which all earners must submit a tax return.

Other reasons to submit a return include being self-employed and earning more than £1,000, or if you have any other untaxed income from tips and commission, savings, investments and dividends, as well as rental or foreign income.

Around 3.4 million self assessment returns are still to be filed before the January 31 deadline next week. Once people file their return, they are urged to check their tax code is correct

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners said: "HMRC may adjust your tax code after you file, so check the change as mistakes can happen.

"This series of numbers and letters used by employers and pension providers to calculate how much tax to deduct from your wages or pension may seem insignificant, but incorrect tax codes are more commonplace and can lead to overpayments or underpayments. It is your responsibility to ensure your tax code is correct."

Different letters in one's tax code indicate specific circumstances about their tax status.

The tax code L indicates that an individual is entitled to the standard personal allowance, while the code M shows that they have received 10 per cent of their partner's allowance through the Marriage Allowance.

The code N, on the other hand, signifies that 10 per cent of the individual's allowance has been transferred to their partner. The S code is used when income is taxed at Scottish rates.

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The T code means that the individual's personal allowance includes other calculations, whereas 0T indicates that their allowance has been fully used up or they have started a new job.

The BR, D0, and D1 codes indicate that all income is taxed at basic, higher, or additional rates, respectively.

The K code shows that the individual has income exceeding their tax-free allowance, which is not being taxed in another way.

Checking a tax code is a straightforward process that can be done in various ways. The easiest method is to simply check the payslip, where the tax code is displayed, whether it is a paper or digital version.

Alternatively, individuals can check their code through the HMRC app or online via the Government Gateway. If they don’t already have one, creating an ID will be necessary.

If a person believes their tax code is incorrect, it’s important to contact HMRC immediately to address the issue. In cases of overpayment, HMRC may investigate and, if appropriate, issue a refund for the excess amount paid. If you believe your code is incorrect, you should contact HMRC immediately to rectify the mistake.

HMRC may then investigate and, if you've been overpaying, issue you with a refund for the overpaid amount.

Haine explains that tax code errors commonly occur when earning from multiple sources, such as part-time work or rental income.

Changes to tax codes can also happen when switching jobs or retiring, or due to technical glitches when filing tax returns.

Haine said: "HMRC may adjust your tax code after filing returns, making it crucial to verify any changes through the HMRC app or online portal."