People have been urged to check their tax details are correct (Image: Getty)
Taxpayers have been urged to regularly check their payslip. Employers have to issue payslips to their workers, and there are several details that must be there by law.
These include your earnings before and after any deductions have been applied. The document should also show details of any deductions that may change each time you are paid, such as your income tax and National Insurance.
Other details that should be included are the number of hours you have worked and if your pay varies depending on the time you have worked. Employers are also obliged to explain any deductions of a fixed amount. They can share these details either on your payslip or in a separate written statement.
Another helpful thing you can find out on your payslip is your tax code. HMRC recently reminded taxpayers: “Everyone is responsible for ensuring their own tax code is correct, and they can manage and update their tax code quickly and easily on our app or via their online tax account.”
It is important to be on the right tax code as this determines how much tax you pay, so if you are on the wrong code you could be taxed incorrectly. Arjun Kumar, founder of accountancy service Taxd, said: “To avoid errors you should check your tax code on every payslip.
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“The quicker you spot something, the quicker it can be rectified. Often with these issues it can add up over time, so it’s good to be on top of it.”
He said you can work out what your tax code means using HMRC‘s tax code checker. Mr Kumar explained some other ways you can check you are on the right tax code. He said: “If you think your tax code is incorrect you should check your payslip or P800 (tax code notice) letters. It will explain how much HMRC thinks you earn and why your tax code is what it is.
“You can also log into your HMRC tax account, and review your PAYE income and add/remove income as appropriate to ensure your tax code is accurate. Finally, you can also call HMRC to check your tax code, they can then issue a new one to your employer for the next payroll run.”
Who is particularly at risk of paying the wrong amount of tax?
Asked which groups are especially at risk of being on the wrong tax code, the expert said: “High earners are always at risk of a wrong tax code as their personal allowance tapers. This is exacerbated if in a sales/commission role where income fluctuates and tax codes can change and are often incorrect too.”
Once your income reaches £100,000 a year, you start to lose the personal allowance. The allowance entitles each person to earn up to £12,570 each tax year without paying income tax. Once your income moves above £100,000, you lose £1 of the allowance for each £2 you earn above this level, meaning you lose the allowance completely once you earn £125,140.
Mr Kumar spoke about another group at risk of paying the wrong amount of tax. He said: “Those with multiple jobs or those switching jobs will likely be put onto emergency tax codes and overtaxed. On the flipside, if a personal allowance is provided to both jobs, then it’s likely that the individual is underpaying tax so this is something to watch out for.”
He warned that you can overpay or underpay thousands of pounds in tax. He said: “For example, if a full personal allowance is removed then around £2,500 in extra tax is paid. Similarly for those with one-off payments e.g. commission, if this is taxed at the wrong rate e.g. 20 percent instead of 40 percent – it could lead to huge tax adjustments at year end.”
If you are on the basic rate of income tax, paying 20 percent, then if you lost your entire personal allowance, you would pay an extra £2,514 in tax.
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