Decoding PAYE tax codes

HMRC send out tax codes throughout the spring, with most being issued during February and March. You will receive a notice by post if you are going to be a tax payer and it is different to the current year’s tax code.

If a new tax coding notice has been received it is important to check it to ensure you do not end up over or underpaying on tax for the new tax year. Coding notices are computer generated within HMRC and transmitted directly to employers’ or pension providers’ computer systems, without any human intervention. This means that issues can slip through the cracks and go unnoticed, which means if you were underpaying you could face a surprise tax bill at the end of the tax year.

Read more about coding notices on our website

2023 Tax Allowances

If you are a UK taxpayer you may be entitled to some tax allowances. These tax allowances can reduce the amount of tax that you pay.

Not all allowances work in the same way, some reduce the amount of income on which you have to pay tax, whilst others (like Married Couple’s Allowance) provide a tax credit that can reduce the amount of tax you have to pay.

Some of these allowances are given automatically to those who qualify, but others like the Marriage Allowance or Blind Person’s Allowance are given to those who claim it.

Here are some of the most common allowances available:

Click here to read more about each of the allowances listed

Late 2021/22 Tax Returns

As most will be well aware, the deadline for filing self assessment tax returns and paying any tax due for the year to 5 April 2022 was 31 January 2023.

Penalties for those who did not meet the deadline are now hitting doormats and those who have received a penalty need to take action if they have not already.

If the tax return has not yet been filed, taxpayers should first check whether they did indeed meet the criteria for self assessment for that year. You can check here. If no return was due, it may be possible to have the return withdrawn which will automatically remove any penalties.

If a return is due, this should be filed as a matter of priority. If the return is not filed by the end of April, further penalties will be charged.

Once the return has been filed, it may be possible to appeal against the penalty if the taxpayer has a ‘reasonable excuse’. The return must be filed first before HMRC can consider an appeal.

If you have clients who need help filing tax returns and/or appealing against penalties please get in touch – we can help!

Gaps in National Insurance Records

In order to receive a full state pension when they retire taxpayers must have made National Insurance Contributions (NICs) for a certain number of years. Where there is a gap in these contributions it is usually possible to make voluntary contributions to top up any missing years within the past six tax years.

There is currently an extension in place that allows voluntary contributions to be made to fill gaps in the record from 6 April 2006 to 5 April 2016 (in addition to later years). This extension ends on 31 July 2023.

There is therefore a limited remaining period for taxpayers to check their records and make any additional contributions they wish to.

You can check your National Insurance record here.

The large Increase in State Pension

For the 2023/24 tax year, the State Pension will increase by 10.1%.

This, combined with the freezing of the Personal Allowance at £12,570, will mean that for a lot of people, their tax codes will change and therefore they will be paying more tax than they did last tax year on their other pensions. Those who did not pay tax on their incomes previously, as they were below the personal allowance, may begin to have tax deducted from April 2023/24.

This large increase may even push some people’s State Pension over £12,570 so if they have other PAYE income, they could have a K code for the first time. A K code means that an amount is added to the PAYE income before the tax to be deducted is calculated rather than it being an allowance deducted from the income. You can read more about K codes here. For those without PAYE incomes or too low to collect all the necessary tax through the PAYE system, they will receive a Simple Assessment calculation after the tax year has finished, letting them know how much tax they still have to pay, and will need to make arrangements to pay the amount directly to HMRC.

If you have clients who have received updated coding notices for 2023/24 and aren’t sure it is correct, please get in touch and we can review it for them.

Sophie’s Story

Sophie came to us with a huge tax debt, in excess of £10,000. She was suffering from severe depression and numerous other health conditions. This stemmed from a series of related misfortunes: an eviction, the loss of her business, the loss of all her records and bank statements, and a broken relationship.

The huge debt she had accumulated felt too much to cope with. The numerous demanding statements from HMRC led to her burying her head in the sand, ignoring all correspondence. Her health deteriorated and she felt trapped, with nowhere to turn.

After Sophie called TaxAid’s helpline, one of our volunteers, Cathy, took on her case. Over the course of several visits, she pieced together Sophie’s business accounts and then began negotiating with HMRC on Sophie’s behalf.

As a result, the penalties for Sophie’s business accounts for in-date years came down to zero. Additionally, an application for Special Relief for the out-of-date years was accepted. In the end, HMRC actually owed Sophie £138.

With TaxAid’s help and support, Sophie is now free of tax debt. The stress and worry that had hung over her for years has also gone and she has been able to move forward with her life.