Tax code error sees worker face £400,000 tax bill – have you checked yours? | Personal finance | Finance

Social media user Throw_back_come_back took to the social media platform for advice on how to remedy their potentially costly situation. They understood that the new job might increase their tax bill due to higher pay, but having an estimated six-figure bill was a shock to the system.

Soon they began to investigate and realized that their new employer had mistakenly entered the wrong salary.

They shared on the Reddit forum r/UKPersonalFinance“I have just started a new job and received a notification from HMRC that I have a new tax code. I logged into my account to check, and it appears that my employer has submitted my income estimate this year at around £900,000.

“It’s, you might be surprised to hear, not correct, unless I got promoted to CEO or something and nobody told me.”

Until now, they had yet to receive a paycheck, so the situation was not entirely clear.

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They polled the community asking, “Is it easy to solve this problem?

“I guess my actual tax bill at the end of the year will be based on my actual earnings, and nothing to do with that estimate, but does anyone know if I should be worried about that?”

Tax codes are used by employers or pension providers to determine the amount of income tax owed on their income or pension.

HMRC assigns tax codes and tells suppliers which ones to use, but there is always a risk of error which Britons are advised to check.

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The majority of the working population will likely have tax code 1257L.

Typically, employees in the £12,570 and £50,271 band with one job and no tax deductions or benefits that may affect their tax liability will be given tax code 1257L.

The figures indicate the personal abatement threshold provided for income tax, which is currently £12,570.

Income below this threshold is not taxed and in June the National Insurance threshold will also increase to this amount.

The current National Insurance threshold is £9,880 a year.

The £12,570 threshold for income tax has been frozen until 2026, providing some stability for future planning but also possibly reducing future pay cheques.

As wages generally increase each year, some people may find themselves approaching or even crossing this threshold before it is unfrozen.

This will then result in a higher tax bill.

Once workers’ wages exceed the threshold, they are taxed at a rate of 20% for earnings between £12,571 and £50,270.

If their income increases even further, they will pay 40% income tax on income between £50,271 and £150,000.

Any income above this amount is taxed at the highest rate of 45%.

The 2021/2022 tax year ended earlier this month, making now the perfect time for Brits to check their tax codes.

HMRC usually alerts Brits if their tax code changes, as they did for the social media user.


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