If the answer is yes, let me ask a second question. Have you ever had a professional tax advisor check your tax codes? Now is the time.
All individuals receive a new tax code at the beginning of the tax year i.e. 6th April and may also receive updated tax code notices throughout the tax year.
Tax codes can be extremely complex, and HMRC often do not get it right. Thus, meaning at the end of the tax year, or 31st January if you are within the self-assessment regime, an over or underpayment of tax arises.
Regular issues faced
The most common adjustment which is often incorrect within a tax code is where an individual earns surplus of £100,000 and HMRC do not restrict their UK personal allowance (£12,500 for 2020/21). This then allows the individual to receive the full allowance throughout the year, creating an underpayment of tax which will then be due in one lump sum.
A second common adjustment which may not be accounted for correctly are employment benefits, such as a company car. If you receive a company car throughout the tax year, or change company cars, HMRC are unlikely to know this unless specifically told and therefore the tax code is not adjusted at all, again creating an underpayment of tax. Please note however if your employer is payrolling such benefits there should be no adjustment through your tax code as all tax will be collected via the payroll.
If you are a higher rate tax payer and make personal pension contributions, or charitable donations during the year then you will be entitled to tax relief by way of extending your tax bands therefore more income is charged at a lower rate. HMRC are again unlikely to account for this unless specifically told and therefore an overpayment of tax could arise. It is worth noting that any repayment interest from HMRC is at a rate of 0.5% in comparison to 2.6% for late payment interest to HMRC.
Keep in touch with your tax agent
If you have a registered tax agent, please be aware that they do not get a notification for their clients’ new tax code in April, or any subsequent changes throughout the year. Therefore, please ensure when you receive a notice of your tax code, to pass this to your advisor for them to check it is in fact correct.
Has COVID-19 forced you to work from home?
Due to the COVID-19 pandemic, many of us have had to work from home and the government have acknowledged that by allowing tax relief within your tax code.
From 6 April 2020, you may be eligible to claim tax relief on a flat rate of £6 per week. This is dependent on what rate of tax you pay e.g. if you pay the 20% basic rate of tax and make this claim, you will receive £1.20 per week in tax relief. This is to account for any extra costs you have incurred from working from home however you do not need to keep evidence of this.
Please note you are not eligible for the above if you have chosen to work from home.
If you would like to discuss the above matters further, please get in touch with Lynn Gracie or your usual AAB contact