Martin Lewis warns 'don't assume HMRC are right' as millions risk 'nasty shock' if tax code is wrong
Martin Lewis has warned “your tax code is your responsibility”
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Martin Lewis has issued an urgent warning for Britons to check they are in the right tax code as HMRC is not always right.
During the ‘Not the Martin Lewis Podcast’ on BBC Sounds this week, the money-saving expert was joined by Rebecca Benneyworth, a tax expert to clarify some complicated issues regarding tax.
The tax expert warned many people risk facing a “nasty shock” if they have underpaid their tax due to an incorrect tax code and are forced to pay it back to HMRC with 7.75 per cent interest.
Lewis explained that anyone who is employed or paying into a pension will have a tax code.
Tax codes dictate how much tax one’s employer or their pension provider should be taking from them in PAYE – so what they should get as their after-tax income.
The money-saving expert warned, “millions of these tax codes are wrong every year”.
Britons could face a nasty shock if their tax code is wrong
GETTYLewis stated: “Let’s just make this very plain if you are listening: Do not assume that because it’s coming from HMRC that it is right.
“Millions – and that is not an exaggeration, it’s a literal fact – millions are wrong every year.”
Benneyworth added: “It can take a long time for that to unravel but it will and that means you’ve paid a lot of tax that you will get back later but not much interest and you’ve lost out on cash flow, or you’ll get a big tax bill that you’re not expecting and that’s a nasty shock.”
When the tax bill comes, she explained people can pay it in installments however it will be at high interest of 7.75 per cent.
Lewis continued: “The most important thing you can understand is that it isn’t HMRC’s responsibility to make sure it’s right.
“It’s also not your employer's responsibility to make sure that it is right.
“It is your responsibility to check.”
Once people can verify their tax codes, they may be owed tax back from previous years if it was wrong or in some cases, people may find out they were paying too little and HMRC may claim back the tax they are owed.
“Tax codes are very confusing for people and hard to steer through,” Lewis added.
As £12,570 is the typical personal allowance, most people’s tax code will be 1257L. An easier way to understand one’s tax code is to know their personal allowance and “get rid” of the last number.
In this case, Lewis explained “just get rid of the 0 and add an L”
Benneyworth explained people may have a bigger tax code than 12570, e.g., 13XXX.
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They may have a bigger tax code if they have put extra money into a pension the previous year so HMRC will assume they will continue to do so, and they are a higher rate taxpayer so they could give them extra relief.
If someone has a tax code less than 1257L, that means HMRC may be allocating part of one's allowances to pay an old tax bill or if they have other income, and their employer pays private health treatment for them.