Wednesday, 10 February 2010

Understanding the BR Tax Code

Generally when you're on a BR code it is because your Tax Allowances (Tax Code) is being put against other income that amounts to more than your allowances. ie: if you earn over £6475.00 from one source but receive income from others sources like another job or pension it is correct to be on BR code at the second source of income. This means that all income is taxed at basic rate (hence BR code). This also applies to pensions too!! Your pensions State and Private may not amount to more than your tax allowance, but you could be being taxed on it. Another scenario is that you are claiming pension but also have a part time job. Often the part time job is taxed on a BR code because assumptions are made that your whole allowance is being used against your pension. This may not be the case, as remember, if you are 65yrs old or over you are allowed an income of £9490.00 tax year 2009-10. Providing your income is below £22900.00.

1st job earnings or pension say 8000.00 less your allowance 6475.00= 1525.00 ( you are taxed on that bit)
2nd job earnings or pension say 4000.00 = no allowance because it has all been used up on your 1st job (your are taxed on all of that)
3rd Job earnings or pension say 10000.00= no allowance because it has all been used up on your 1st job (your are taxed on all of that)

BUT here is the crunch. If your earnings from your 1st job or pension are below your taxable allowance for example£ 4000.00 a year you will have £2475.00 of unused tax allowance that needs setting off against your other income from your other jobs/pension. You are able to split your tax allowance between different jobs/pension at different companies but you need to inform the tax office and ask them to do that for you. In theory you can have a tax code at one company of 200L to cover your earnings there another one 400L to cover earnings at a second job and 47L etc."

Please note: The onus is on you to notify the tax office of any changes in your circumstances. They have neither the inclination or the resources to ask every employed or pensionable person if their circumstances have changed in anyway outside of the norm. The norm being, employed in one job at the same company for a number of years and earning more than £6475.00 a year (2009-10) and other previous years earning more than the normal personal tax allowances. The norm for pensioners is drawing only their state pension!

The employer and the pension companies err on the side of caution and tax you one way or another unless notified by the tax office not to do that!! If they didn't tax you when appropriate and it was later discovered they should have done they can become liable to pay the unpaid tax. This is why they err on the side of caution. If an employer or pension provider was to make an error by not taxing you when they should have done they are answerable to the Inland Revenue. It is easier for the Inland revenue to go after them as they are more likely to be in a position to pay it back rather than to chase people to pay it back at £1 a week! So you can clearly see why the people that pay you your money are not to bothered whether you are taxed incorrectly or not! So long at they are not putting themselves at risk, they aren't bothered."

Sunday, 7 February 2010

Tax codes and how to check yours and get a refund part 4!

VERY IMPORTANT POINT!!!! Have you changed your job where once you did get these benefits but no longer do?? But you still have the same old tax code. How does the tax office know if you don’t tell them? The tax office works solely of assumptions! If you don’t tell em they can’t know................can they.

My advice to everybody is: You must understand how your tax allowance and tax code is worked out because only then can you understand when to query it. I very little knowledge goes a long long way!!!

I hope this has helped some people? As I am not naturally a good writer I have decided to stop for today. Tomorrow I may put some tips and hints in the advice and discuss the BR code more fully!

Tax codes and how to check yours and get a refund part 3!

That was easy wasn’t it? Now all we need is for you to get your last payslip (if you have one) go on go find it!
Checking YOUR Tax Code on your wage slip and the questions to ask yourself.
Remember remember we are only talking about this year’s tax code. Errors can be resolved from 5years ago and refunds can be collected by you!

Q. Does your wage slip show 647L with the boxes which say week one and month one left blank?? A. If yes and you are planning on working a whole tax year this is probably correct in 99.9% of cases. BIG BUT! Q. Have you had periods of unemployment earning less than your yearly allowances in the last 5yrs and perhaps paid income tax?
A. Check your P60’s (this is a statement of earnings and tax deducted that you receive from you employer each year around the month of May) Never ever throw your P60 away!! This is sometimes the only proof you have of earnings and tax deducted from your wages. AND!! If you have lost your job from a company that has gone bust there is the likelihood of your income tax and your National Insurance contributions not being credited to you account at the tax office and the NI office.
Q. Does your payslip show 647L and one of the boxes marked week 1 or month 1 has an x in it?
A. If yes.....why are you on emergency code???? This is a common problem which often creates a situation where too much tax being taken out of your wages.
Q. If your tax code is less than 647L do you know why?
Possible reasons for this are: You receive taxable benefits from your employer such as a company car, petrol allowance and private health benefit such as bupa. If the average person doesn’t get these benefits from an employer we have to pay for these out of our income that has already been taxed. It is only fair then, that you get penalised for having this benefit that the average person doesn’t get! However, if you can convince the tax office that your company car is not used for pleasure by you (because you have another car at home you use in evenings and weekends) take it up with them and get the allowance dropped............this is possible I can assure you! On average your car benefit could be approximately £3500 per year and health benefit £700 per year 3500+700=4200.00 taxable benefit. So, the sum is, when reflected in your tax allowance as follows. Tax allowance 6475.00(remember everybody has the same starting point) -4200.00= 2275.00 approximately. You tax code shown on your payslip would be 227L. VERY IMPORTANT POINT!!!! Have you changed your job where once you did get these benefits

Tax codes and how to check yours and get a refund part 2!

Starting point for establishing which Tax Code you should be on.

Everybody is entitled to some Tax Free Income and your Tax Code is the tool that operates this system. From birth to death and working or not working EVERBODY has a tax free allowance. It will be operated correctly only if the wages department that does your wages are doing it correctly and the information is correct that is put onto their system! If you’re receiving state pension, private pension or a mixture of the two, it will only be operated correctly, only if the pension provider has the correct tax allowance information for you. Everybody starts each New Tax Year with a Tax Free allowance which decides the tax code that you will have and this can change on a yearly basis depending on the Governments Budget on Tax Free Allowances.
A Tax Free allowance is the amount you can earn (any income from any source) in any one tax year before you pay any income tax!!
A Tax year runs from 6th April -5Th April of the following year. This is why we refer to tax years in the following format: 2006-07, 2007-08, 2008-09, 2009-10 etc.
This tax year (2009-10) the Tax Free Allowance is £6,475.00 which equates to a tax code of 647. If you’re aged 65-74 Tax Free Allowance is £9,490.00= tax code 949.This means you can earn £6475.00 this year before you have to pay tax and if your 65-74 it is £9490.00 before you pay tax.
Understanding the letter that comes after your tax code is a little trickier, but don’t give up on me yet!
L For those eligible for the basic Personal Allowance - 647L for the 2009-10 tax year. (This is most of us) It is also used for 'emergency' tax codes (I will cover this later).
P For people aged 65 to 74 and eligible for the full Personal Allowance
Y For people aged 75 or over and eligible for the full Personal Allowance
T Is if your tax code is under review
K When your total allowances are less than your total ‘deductions’ (I will cover this later).
BR is a Tax Code that doesn’t come after any numbers and being on this code is where a lot of income tax problems occur! Lots of companies that can’t be bothered getting the correct information off you often dump you on this code. Especially, if it is s short term contract you are on. If you’re a student WATCH OUT! Most short term casual employees are put on this code as it is wrongly assumed you have used your allowances up on another job elsewhere!

Tax codes and how to check yours and get a refund!

I have decided to offer a public service educating people to understand a little about PAYE and their Tax Codes. Most people choose to ignore their tax codes and allowances only because they cannot understand them. This in turn means you cannot question it and will not spot if anything is amiss. As I have worked for many years as a Financial Controller amongst other things, I have seen time and time again that there are many people that are having their wages calculated whilst on the wrong Tax Code. When I worked as a freelance FC the first thing I check when I start a new job is the staffs Tax Codes. My reasons for doing this are twofold. With the fiasco announced from the Inland Revenue that their new system will probably create in excess of over a million more people getting the wrong Tax Code for the new tax year too, and the fact that a lot of people have come out of work and maybe then gone back into work at a different company, I thought now is the time to get people to understand their Tax Codes and question whether it is correct or not. Changing your place of employment or the source of where you are receiving your income from is the single most likely reason why somebody is not on the correct tax code!
The following information is general and applies to the average worker with one or maybe two jobs or receiving a pension and working and not too many complications in regard to taxable benefits. I will try and write it in simple English to reach the average working person. It is impossible for me to cover every single possibility of every single person’s personal circumstances. This information will work for most people.......I promise! Please note this information is all about averages and this is where most of the population fall. Having and benefiting from your Tax allowances is all about INCOME. Where this income is from is not important as to whether you’re provided with an allowance!! Even the long-term unemployed claiming every benefit imaginable have a yearly tax allowance.