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As of the 6th January 2024 the main rate of Class 1 National Insurance Contributions (NIC) deducted from employee wages was reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits.
Getting an emergency tax code isn’t necessarily something to worry about, but it’s essential to understand why you’ve got it, and to fix it if it’s wrong. Emergency tax codes are only meant to be used temporarily, when HMRC doesn’t have enough information to work out the code you should have. Because of that lack of accurate, up-to-date information, getting stuck with an emergency tax code could leave you paying more tax than you owe.
If you're on an emergency tax code you’ll notice it first in your payslips. Here’s what they generally look like:
The main things to watch out for are the letters after the number in your tax code. The numbers at the front refer to your Personal Allowance – the amount of money you can earn in a tax year before you start paying Income Tax. Multiply that number by 10 to work out how much that is. Everything after that number will refer to the specific circumstances affecting the tax you pay. So, for example, an L at the end of your tax code simply means that you qualify for the standard Personal Allowance. You can read more about what specific tax codes mean here.
The problem with emergency tax codes is that they’re ‘non-cumulative’. This means they won’t take into consideration all the circumstances that affect the tax you owe, or any tax you’ve already paid. With an emergency tax code, all your income above your tax-free Personal Allowance gets taxed.
If you spot one of these emergency tax codes listed in your payslips and don't know why it’s there, talk to RIFT as soon as possible.
It’s possible for an emergency tax code to leave you paying too much tax. This can easily happen, for instance, if you start a new PAYE job without showing your employer a P45 form from your old one. To get your proper tax code sorted out, just give your P45 to your new boss.
If you’re just starting your first job, or taking on a job without quitting your previous one, your new employer will ask you to fill in a “starter checklist”. This form should make sure you get the right tax code for the job.
If you can't lay your hands on a P45, you might end up having to claim tax back from HMRC directly. Obviously, how much tax you can reclaim depends on your situation, so talk to RIFT to find out exactly what you're owed.
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When you leave a job, you're supposed to get a P45 form from your old employer. This form shows how much money you've earned and how much tax has come out of it in the current tax year. Without that information, your next employer won't be able to work out the right tax code for you. The chances are, you’ll end up with a temporary emergency tax code until the confusion's sorted out.
While they aren’t as big a problem as many people fear, emergency tax codes can still be a pain. For one thing, while they include your Personal Allowance, they don't take into account any other tax reliefs or allowances you might qualify for.
An example is the Blind Person's Allowance. If you’re entitled to that, it’ll show up on your tax code. If you’re on an emergency tax code, though, you could be losing a painful £2,870 off your tax-free allowance (using the figures for 2023/24).
The biggest problem with emergency tax codes is that it's possible to be taxed way more heavily than you should be. There's a rule that stops you from losing more than half of your PAYE earnings in any month, but that's probably not much of a consolation when you're overpaying unnecessarily.
This all happens because emergency tax doesn't take the tax you've already paid in the tax year into consideration, or how much of it falls into each tax bracket. This is on top of not including all those allowances and reliefs you might qualify for. Without including all that information in your tax code, you end up paying up each month as if you've paid no tax previously in the year.
Tax codes are something that most people are in the dark about, and it's so important to keep on top of them. Of course, with RIFT on your side you'll never have to worry about this. If you spot a change in your code and don't understand why it's happened, give us a shout and we'll sort it for you.
When you’re paid through the PAYE system, your tax code will usually be based on the following main details:
Your PAYE tax is spread out evenly throughout the year, along with your Personal Allowance. So, you get either 1/12th or 1/52nd of your tax-free allowance each month or week, depending on how often you're paid.
Generally speaking, the taxable income covered by your PAYE tax code includes any earnings you make from employment. That means thing like:
If HMRC doesn’t have enough information to decide on the correct tax code for you, you can end up with a temporary emergency tax code instead.
Depending on how your employer reports any benefits in kind included alongside your pay, you might see a change in your tax code. This doesn’t automatically mean you’re on an emergency tax code, though.
Some employers ‘payroll’ benefits in kind instead. This means they treat their cash value as part of your weekly or monthly earnings. When they do this, you shouldn’t see any change to your tax code. However, if your employer reports your taxable benefits in kind separately through a P11D form, you’ll generally see a change in your tax code to account for them.
Either way, as long as HMRC has enough information about your circumstances to calculate your tax code correctly, you should avoid getting stuck on an emergency code.
If you've got the letters “BR” in your tax code, you're being taxed at the basic rate from the first penny you earn in this job. This might be because your employer doesn't have the information needed to set your code properly, but it's not necessarily wrong. For example, if you've got two or more jobs, your tax-free Personal Allowance is only attached to one of them. Your other job will generally be taxed from the first penny.
There can still be problems if your main job brings in less than your Personal Allowance or your combined income hits the threshold for higher rate tax, though. Also, switching from self-employment to a PAYE job can sometimes land you with a BR tax code. Again, if you're not sure exactly where you stand, RIFT will set everything straight. If you're owed a tax rebate as a result of being on the wrong code, we'll help you claim it back as well.
BR tax codes crop up in a few circumstances. Usually, it just means that your employer doesn't have enough information to give you anything else. For instance, this can happen if you haven't given them a P45 or P46 before starting work. The same thing can happen if you're moving from being self-employed to a PAYE job.
Not necessarily. The BR code really means that you aren't getting your tax-free personal allowance on that income. I If you've got more than one job, you only get the allowance on one of them. Keep in mind that if your Personal Allowance is being applied to a low-paid job, you might not get the full benefit of it. In that case, you should talk to RIFT about getting it transferred to your other source of income.
When you claim your tax rebate with RIFT, our unique RIFT Guarantee means that you’ll never have to worry about the taxman reclaiming any of your money. So long as you give us full and accurate information, if HMRC disagrees with the amount we've claimed and asks for some money back, we'll pay it from our own pocket instead of yours. It won't cost you a penny!
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