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."

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