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Tax: Am I paying the correct amount?

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In the words of HM Revenue and Customs, ‘Tax doesn’t have to be taxing’. And they’re right. It pays to know how it works so here’s a quick guide:

PAYE

The UK’s Pay As You Earn system (PAYE) collects tax from us as our wages are paid in. We pay tax throughout the year rather than in one lump sum at the end.  HM Revenue and Customs (HMRC) receive the tax but it is your employer who is responsible for deducting it from your wages, using PAYE, and sending it on.

The PAYE system takes the pain out of having to work out tax payments for ourselves. That said, it’s worth doing your own research to make sure you’re paying the right amount. If you change jobs frequently or if your circumstances change in other ways e.g. maternity/paternity/adoption leave or if you are a student, then your tax code could change. Your tax code is what tells your employer how much tax they should deduct based on your circumstances.

N.B. If you have any income in other than regular employment (e.g. income from self-employment or renting out a room to a lodger) you need to do a self-assessment. Being self-employed and working on your own terms can be very appealing once you’ve started a family but before you take on any new income, make sure you look into self-assessments beforehand so you know exactly what is required. Contact your local tax office or Citizens Advice Bureau for help getting started.

How do I check my tax code?

The HMRC are pretty good at getting your tax code right, but when they don’t have enough information your tax may be deducted using an emergency tax code. This means you could pay more than you need to. You’ll be able to claim this money back once the correct tax code has been issued but in the meantime, your already-stretched family budget may suffer. This is why it makes sense to get it right first time!

Tax: Am I paying the correct amount?When you are issued a tax code it will be sent out on a notice of coding by the tax office. You can also find it on your pay slip, you’ve probably seen it before but been unsure how tax codes work. The notice of coding will contain notes on how and why you have been allocated your tax code. Check this carefully to make sure any allowances or reliefs you are entitled to are taken into account as well as all your income. This information is usually sent out in January or February before the start of the new financial year in April however, don’t expect to receive one every year unless your circumstances change.

What if I don’t understand the notice of coding?

Firstly, don’t panic and try not to get frustrated. There can be a lot of jargon involved in ‘tax speak’ and as many of us don’t work in that field, we can be forgiven for not understanding it.

This is your money and it’s your right to ask as many questions as necessary to understand why it’s being deducted at a specific rate. There’s no such thing as a silly question when it comes to tax, you just need to find the right person to translate it for you! Find a quiet moment when the children are otherwise occupied and contact your local tax office or Citizens Advice Bureau to speak to an experienced adviser who should be able to resolve any concerns you have.

Maternity, paternity and adoption leave

Wages during this period of leave can vary between employers. If at some point during this leave, you are no longer getting paid, you may be entitled to a tax refund. This is because you did not use your tax allowance during the period you were unpaid. Check with your employer to see if you are due a refund!

What I’ve been taxed using the wrong tax code?

Your first port of call should be your employer. They are responsible for deducting your tax so find out if it could be an administrative error.  Your employer should very familiar with using the PAYE tax system and will have guidelines from HMRC on how to resolve potential issues.

If speaking to your employer doesn’t resolve the problem then you can contact your local tax office or call the HMRC’s Tax Helpline on 0845 3000 627.

If you don’t know, ask!

In summary, the golden rule when it comes to tax is if you’re not sure, ask. You could save yourself money from overpayments or eliminate the risk of finding out you’ve underpaid. The system isn’t designed to catch you out, but it can be confusing if you don’t deal with it on a regular basis so make sure you speak to someone who does!

Visit HMRC for more help and information.

 

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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