Does your tax code look wrong? Has it changed unexpectedly after you claimed a tax refund? Don’t worry – RIFT has you covered.

Understanding your tax code is a big part of getting the best from your financial situation. Even so, it’s still something that confused a lot of people. When your tax code changes, it means your circumstances have made a difference to the tax you owe—and it’s not necessarily bad news. That’s why RIFT always takes such great care to make sure your code’s correct.

Understanding tax codes

You can read up on what your tax code means and how it affects you in our Guide to Tax Codes. For now, though, here are the basics:

  • Your tax code is a string of characters that tells your employer how to tax your earnings. Your code is issued by HMRC and only they can change it.
  • The numbers at the start refer to your tax-free Personal Allowance. Multiply that number by 10 to see how much you can earn in a year before paying Income Tax.
  • The letter code at the end explains any special circumstances affecting the tax you pay. For most people who are paid through the PAYE system, the code will be L. This just means that the standard Personal Allowance applies.

So, if HMRC assigns you the most common tax code of 1257L, it means you can earn £12,570 per year before you start to pay Income Tax, with no special circumstances to consider.

Why did my tax code change?

There are a lot of reasons why HMRC might change your tax code. For example, the threshold for paying Income Tax can change over time, which will obviously mean the number at the start of your tax code goes up. For instance, for the 2020/21 year the main UK tax code was changed from 1250L to 1257L. This meant that people who qualified for the basic Personal Allowance could earn an extra £70 a year before being taxed.

When the characters at the end of your tax code change, it means that something about your personal circumstances is altering the way you’re being taxed. You can see a list of what those characters mean on our HMRC Tax Codes Explained page—but again, remember that a change isn’t always a bad thing. You might be given a new tax code when you use the Marriage Allowance system to transfer part of your Personal allowance to your partner, for example (or if they transfer some of theirs to you).

Can you have more than one tax code?

A tax code is linked to a single PAYE job, so if you’ve got more than one job you’ll have more than one tax code. Importantly, those tax codes won’t be the same. This is because your Personal Allowance only applies to your “main” job” – which is usually the one that pays the most. If you’ve got one job that pays less than your Personal Allowance and another that pays more, it’s essential that your Personal Allowance is attached to the right one. If not, you might well find yourself paying more tax than you owe!

Does RIFT change your tax code?

Tax codes are issued by HMRC, based on the information they have about you. RIFT can’t make any direct changes to your code. What we can do, however, is let HMRC know when they’ve put you on the wrong tax code, and get them to fix it before it starts costing you money.

Here’s how that works. When you claim a tax rebate for work expenses like travel mileage, HMRC will sometimes bump your tax code up a bit to take the expenses you’ve claimed into account.

Changing your tax code so that you can earn more before you start to pay Income Tax is great—but there’s a catch, and it can cause problems down the road. Based on the information they have about your expenses, HMRC will tend to assume that nothing changes year on year. As most people who travel for work will know, though, those essential expenses are rarely the same from one year to the next. This means that your tax code will quickly fall out of step with your actual circumstances.

When that happens, it’s critical to get your tax code corrected as quickly as possible. That’s where RIFT leaps into action. We can’t change your tax code ourselves, but we can explain your situation to HMRC and get them to fix the problem.

Does it matter if my tax code’s wrong?

Simply put, being on the wrong tax code means you’re probably paying the wrong amount of tax. If you’re paying too much, you’re missing out. If you’re paying too little, you’re storing up serious headaches and possible fines and penalties when HMRC catches up. 

Mistakes in your tax code—even if they’re not your mistakes—are your responsibility by law. This is why RIFT always keeps a sharp eye on your tax code and gets HMRC to correct it quickly if it’s wrong. It’s one of the main ways we protect you and your money, and it’s why you’re always better off with RIFT.