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What Is Emergency Tax and What Should You Do If You're Paying It?

What Is Emergency Tax and What Should You Do If You're Paying It?

If you change jobs and notice a sharp increase in the amount you are being taxed, you may find that you have been put on what is known as an ‘emergency tax’ code. If you have been assigned an emergency tax code and are wondering what this means, let us explain.

Your tax code helps HM Revenue and Customs (HMRC) work out how much tax you are due to pay from your salary/on your income. It can change whenever your circumstances change.

According to gov.uk, you may be put on an emergency tax code if you’ve started:

  • a new job
  • working for an employer after being self-employed
  • getting company benefits or the State Pension

When your tax situation becomes complicated or unclear to HMRC, as a short-term solution they will often assign you with an ‘emergency tax’ code.

As a result, to be on the safe side they take the maximum amount that you might owe. This means that you’ll temporarily pay tax on all your income above the basic Personal Allowance, even if your circumstances do not require you to do so. This usually means that you will be temporarily overtaxed, which can eventually be reclaimed from the government.

It’s not an ideal situation when every penny counts, so if you’re looking to find out what you should do if you’re being emergency taxed, and how to get your money back, keep reading.

P45 cross-over

A common culprit for being assigned an emergency tax code is when you start a new job, or if you have several simultaneous part time jobs.

For example, let’s say you’re a student and in the summer you’re working full time in a bar. If you did this all year, you may earn more than the Personal Allowance (tax free allocation for the year) and therefore owe tax. However, if you’re only doing it for a few weeks you won’t reach the tax-free limit and therefore don’t need to pay any tax. However, to avoid people suddenly getting a big hit of tax once they reach the personal allowance (currently £11,850 per year), HMRC smooths out the calculation so, once your monthly income goes above about £1,000 a month, standard rate tax will apply.

In the case of changing jobs, it’s often due to a missing P45. This is the document given to an employee when they leave a job and which gives their next employer or benefit agency information about their tax code, gross pay, and the tax that they have paid for that year. Without a P45 HMRC does not have enough information to calculate how much tax you should be paying so will temporarily allocate an emergency tax code.

In this instance, you may find that there is just a delay in the administration of your new employment status, and that your tax code will change again once you have provided your P45 to your new employer, who will pass the information on to HMRC.

What can you do?

If you have recently changed jobs, you may wish to chase up the administration of the information on your P45, so that your correct tax code can be worked out and applied. Getting in touch with HMRC for updates can give you peace of mind. This can be done by phone on 0300 200 3300, or online at https://www.gov.uk/tax-codes/updating-tax-code.

As soon as HMRC has the information they need, your tax code will be adjusted and any amount overpaid will be given back to you. However, if you need the money more immediately, then try calling HMRC as soon as you realise that your pay slip is wrong.

Advice from gov.uk:

It is important that you keep all your tax coding notices (letters that indicate a change of tax code and what your new tax code is), to check that HMRC have calculated your code correctly and that your employer is using the correct tax code for you.

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