What Are Tax Code Allowances?​

Tax Code AllowancesHow does your tax code allowance change the amount of tax you pay?

Tax code allowances determine how much ‘tax-free pay’ you can have each month, reducing the amount of employment income you pay tax on. This means you pay less tax over the year and get relief ‘through your code’. For instance, if you’ve got work expenses that don’t change from year to year, HMRC might alter your tax code to account for the tax relief you qualify for.

Knowing if you’re on the correct tax code can be complicated, and if your code doesn’t match your circumstances you could end up paying more tax than you owe. RIFT can help ensure you’re paying the correct tax with our tax rebate and Self Assessment services.

See our HMRC Tax Codes Explained page for an overview of the various tax codes and what yours means – and feel free to get in touch with us at any time if you have questions.

While you’re at it, why not answer a few quick questions from us to see if you’re due a tax rebate?

Is my tax code right?On the wrong tax code? You're probably paying the wrong tax

You tax code’s supposed to reflect your basic working circumstances. However, your employer and HMRC make a few assumptions when setting your code. Their main assumption is that those circumstances won’t change over time. If your life or work get shaken up during a tax year, this can mean your code ends up wrong. In turn, this can lead to you paying the wrong amount of tax. In addition, there may be times when your code is simply applied wrongly. Examples of things that can cause this include:

• Leaving the UK part-way through a tax year.
• Stopping work during the tax year.
• Being on a temporary or emergency tax code.
• Having more than one job. Your Personal Allowance only applies to your ‘main’ job. If HMRC applies it to a job that earns you less than the Personal Allowance threshold, you might not get the full benefit of it.

In any of these situations, you may end up paying more tax than you owe. If HMRC knows there’s a problem, they might fix it automatically by sending you a P800 tax calculation form. If they don’t have enough information to do this, you’ll need to claim a tax refund to square things up instead. As always, talk to RIFT if you think there’s a problem with your tax code.

National InsuranceNational Insurance and Personal Allowance

National Insurance Contributions (NICs) are payments made from your income that determine your entitlement to the State Pension and other benefits.

As with Income Tax, you can earn a certain amount of money before you start paying National Insurance – and that number can change over time. For example, the Class 1 Primary Threshold (PT) rates for most employees in 2023/24 started as: