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What is the emergency tax code? - The PAYE People

November 2, 2021by The PAYE People

If you are a citizen of the UK that’s working, then you are most likely to have a tax code. A tax code is a unique number that your employer uses to know how much money they need to deduct from your paycheck to give to HMRC as tax. But there can be situations that occur when you don’t have a tax code (yet). As a result, you will be placed on an emergency tax code. What is the emergency tax code?

The emergency tax code is a code applied by your employer when the correct tax code is unknown. The emergency tax code is a series of numbers and letters that works in place of a tax code. Emergency tax codes are temporary until you or your employer provides the required information to HMRC. The information the HMRC is asking for is information that you should have already given them, but haven’t for some reason.

Why do you get an emergency tax code?

Emergency tax codes can be issued for various reasons depending on your income circumstances. These can include:

  • When you start a new job (or just changed jobs), you will be given an emergency tax code to cover your first tax year. The emergency tax code allows you or your employer to file and pay your taxes. In this case, you get this code because you are unable to provide the P45 form.
  • You get an emergency tax code when you start working for an employer (PAYE employment), after being self-employed.
  • When you start receiving pension benefits from a state, a company, a qualified private pension, a qualifying annuity (or disability benefits from a private company) you can apply for a new emergency tax code.

You get an emergency tax code when little is known about your current source of income. The emergency tax code is a short-term measure and you’ll stay on it until you’ve paid the correct amount of tax. That is if you paid the change of your income caused you to not pay the right amount.

A wooden table with a selection of HMRC letters regarding emergency tax

Which codes are emergency taxes?

Tax codes include numbers and letters that are used to determine the percentage of your income that you should pay when filing taxes. An emergency tax code may appear on your payslip as follows:

X M1 W1 0T BR

X, M1 and W1 are issued to those who have just started a new job as an interim measure until the HMRC issues the right tax code. So, once the HMRC has assessed your tax – you then get a new tax code. These numbers and letters often come alongside other numbers and letters so the code won’t be a single or two characters.

BR and OT are very important tax codes. These codes can be used for normal tax purposes, but they’re most often used as emergency tax codes. When not used for emergency purposes, they can be for pensions or a second income. BR stands for “basic rate” which means your tax deductions will be at the basic rate of 20%.

When you spot OT on your payslip know that you will be taxed on all your income. If you are in a higher income bracket expect taxation at 40%.

A HMRC letter with a ten pound note behind.

What to do when you think you are on the wrong tax code?

If you find that you’ve been put on the wrong tax code, the first thing to do is consult the HMRC. After checking your income details they advise you appropriately. They can quickly help you to confirm or explain your worries. They’ll also be able to confirm how much tax you’ve been paying. With this, you can then work out how much you would need to repay or perhaps even get a refund.

HMRC will often contact your employer when they find out you don’t have the right tax code. The reason for this is simple. If you don’t have the right tax code, you might not be paying the right amount of tax. This means you’ll definitely want to get in touch with authorities quickly to take care of that. Your employer will receive a letter, which will request that they complete a P46 form.

Always check your tax codes to be sure you are put on the right tax code and you are paying the right amount.

How to get the right tax code?

Employers can help their employees to stay on the right side of the law. They do this by sending details about their employees’ current and previous income and pension to HMRC so as to avoid fines and penalties. Updates of this type help the tax office to better understand the current and previous income circumstances of people. This will therefore enable them to process their tax code correctly.

Once HMRC has received the relevant information about you, they will work out the right tax code fit for your situation. You and your employer will then receive this code. You should always inform your employer when you have a change of your tax coding to make sure both of you are on the same page.

A selection of HMRC letters regarding emergency tax

What are the repercussions of using an emergency tax code?

With the emergency tax code, you may qualify for a tax rebate. Of course, that is if you’ve already paid too much tax during the year with that code. You can claim that refund yourself by filling out for tax reimbursements. That is if you have not received the rebates from the HMRC. Ideally, the tax you overpay will often be reimbursed to you during that same tax year without you requesting.

Using the emergency code to pay less tax may seem to be an interesting move until you get a request from the taxman that you owe him. The HMRC will write to you to claim the money you owe. So, if you are aware that you are paying less tax than you should, reach out to the tax offices and let them know of your situation.

A summary of what is the emergency tax code? 

The emergency tax code is used when there is not enough information to file tax returns. This could be when you just changed jobs, or quit your business and got a PAYE job. Might also be that you are receiving benefits from your employer or the government. You get the right tax code as soon as you have availed the necessary information to the HMRC. If you overpaid taxes with your emergency tax code, you can claim rebates. Conversely, if you pay fewer taxes, expect the taxman to contact you to pay what you owe. If you have any questions you want to be answered, request a call back here.

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