National Payroll Week serves as a reminder of the critical role that accurate payroll processing plays in the smooth operation of businesses. One common issue that can arise in payroll is the use of incorrect tax codes. A recent case involving an NHS medical professional who worked bank overtime for the same hospital highlights the importance of understanding your tax code to avoid significant tax liabilities.
The medical professional in question was unaware that both her primary employer and the overtime employer were using the same tax code. This resulted in her receiving double her personal allowance, leading to a substantial underpayment of tax. When the error was discovered, the worker was faced with a significant tax bill.
Why it is crucial to have the correct tax code
Accurate tax calculations: A correct tax code ensures that the appropriate amount of tax is withheld from your earnings.
Avoidance of tax debts: An incorrect tax code can lead to underpayment of tax and, consequently, a tax debt.
Peace of mind: Knowing that your tax affairs are in order can provide significant peace of mind.
How to check your tax code:
Log in to your HMRC account: You can check your tax code online through your HMRC account.
Contact HMRC: If you're unable to access your account online, you can contact HMRC directly to inquire about your tax code.
When to update your tax code:
Changes in income: If your income changes, such as starting a new job or receiving additional income, you may need to update your tax code, contact HMRC to check.
Changes in personal circumstances: Changes in your personal circumstances, such as marriage or having a child, can also affect your tax code.
Seeking professional advice:
If you're unsure about your tax code or have concerns about your tax affairs, it's advisable to consult with a professional. They can help you verify your tax code, assess your tax liability, and provide guidance on how to address any issues.
In conclusion, the case of the medical professional who faced a significant tax bill due to an incorrect tax code serves as a stark reminder of the importance of verifying and updating your tax code regularly. HMRC provide information about the tax code and what it means here. By taking the necessary steps to ensure that your tax code is accurate, you can avoid financial penalties and maintain peace of mind.