Picture this. It’s payday, you’ve been waiting all month to see your bank account go up and the time is finally here. No feeling quite like it is there? Except for, of course, when you check that payslip and realise money has been deducted; it leaves you looking at the number we all dread, questioning “why has the tax on my payslip changed this month?”
What is a tax code?
Tax codes are HM Revenue & Customs (HMRC) way of checking how much tax and national insurance you should pay each year. If you are a full time or part time employee – or receiving a private pension – then I’m afraid you fit into this category. It is used by your employer to work out how much tax should be deducted from your wages or pension before you are paid as a PAYE employee. The numbers indicate how much tax free income you can earn throughout the year. This is calculated by taking the personal allowance for that tax year and deducting things like: a company car, private medical cover and other income you haven’t paid tax on as well as gift aid donations and personal pension payments.
General reasons the tax on your payslip has changed
Anyone who pays tax knows that it can be the bane of your life – especially when you can’t understand why your tax code has suddenly changed. April saw the start of a fresh financial year and with it, sadly, came a change to the tax codes for everyone being paid via the PAYE system.
There are some common reasons your tax code may have changed and understanding those is key to getting rid of your tax headache. There are many things that can make your payslip fluctuate from month to month, ranging from an increase in commission, cheap or interest free loans all the way to pension payments. There really is no one set thing. There’s one man that cannot be missed when it comes to the wonderful word of tax codes and that is the taxman. He may change your code if you have claimed a refund so that your expenses are taken into consideration in the future.
Don’t forget the COVID-19 pandemic and the huge impact it has had on everybody around the world. During the pandemic, the authorities were rather occupied, so understandably the focus wasn’t necessarily on reclaiming overdue tax. If you felt you had escaped that one, brace yourself. They are now tightening the reins again and tens of thousands of people are finding themselves with new tax codes that are leaving them with less money coming in. During the tax year a lot can change. If your circumstances change, HMRC can amend your tax code at any time but will also send you a new PAYE coding notice too. Your tax code might also change if you are someone who has started or stopped getting benefits from your job or are now claiming taxable state benefits. As a result, HMRC will update your tax code. Getting married can also affect this, if you start to claim marriage allowance or expenses that are eligible for tax relief.
Changes in your pay or income
If your income has changed then the chances are your tax will too. It’s all about if your tax-free income (also known as personal allowance) goes up or down according to HMRC. For example, if you find yourself working more in a particular week or month then naturally you’ll earn more but with that comes a higher payment of tax. If you start a new job, receive benefits, work expenses or start getting your pension – and your income changes – then HMRC will automatically update your tax code. They never miss a thing.
Emergency tax codes
Emergency tax codes can also be a reason tax has changed on your slip. This is used when not enough income information is known by your employer; for example, if you have just started a brand new job and can’t provide your P45 from your previous employer. Other circumstances that could result in your tax code being unavailable could include starting PAYE employment after previously being self employed or receiving company benefits such as a company car. An emergency tax code is nothing to worry about too much as the chances are it will sort itself out when the correct tax code is available. Still, we always recommend to keep an eye out if something doesn’t look quite right in your end of month payslip.
Understanding tax, payslips and money management is no easy process. Our qualified experts at Cloud Accountant.com are on-hand to provide expert financial services and advice. If you’d like to discuss how our experts can support you, contact us today on 0113 323 1960 or email us at firstname.lastname@example.org.