PAYE tax codes – what to watch out for in 2015-16
What should you look for in your PAYE tax code, and is there anything new for 2015-16?
During the tax year to 5 April 2014, the standard amount of tax free pay for employees under state pension age is £10,000. This gives a basic tax code of 1000L. From 6 April 2015, this rises to £10,600 – giving a tax code of 1060L. (For details of how this works for older people, and in special circumstances see the pages on PAYE codes and personal allowance).
What’s new in 2015
There are some changes for 2015-16. Look out for the following:
Transferable allowance between couples
From April 2015, 10% of the personal allowance (of £10,600)is transferable between couples. There are rules and conditions; for example, neither of the couple can be a higher rate tax payer, and they need to be married or civil partners. A claim will need to be made on-line, but the system to claim is not yet up and running.
This means that the first round of PAYE codes issued for 2015-16 will not include this adjustment. Don’t worry, you will be able to make a claim later in the year and your tax code will then be revised. The partner receiving the allowance will gain £1,060 of tax free pay and have a code letter of ‘M’, rather than the usual ‘L’; the partner giving the allowance will lose £1,060 of tax free pay and have a tax code letter of ‘N’ rather than the usual ‘L’.
Coding out debts
Another change is that the amount of HMRC debt that can be included in a PAYE tax code is increasing for higher earners. Those earning £30,000 a year or less will be unaffected: the amount of debt that can be recovered will remain at £3,000. For every £10,000 of additional earnings, the amount of debt which can be included in a tax code will rise by £2,000 – to a total of £17,000 for PAYE earnings of £90,000 a year or more.
If your tax code has been adjusted for an HMRC debt, make sure that you know exactly what it is for. You will need to consider if the debt is correct. You may be able to get longer to pay, if repayment in a single year will cause hardship.
Other things to watch for:
Always check your tax code for:
- Work Expenses – these may be flat rate deductions for items such as laundry, or specific amounts eg for professional subscriptions. See employee expenses
- Benefits in kind – such as company cars, medical insurance etc. Watch out here for ‘payrolling of benefits’. Payrolling of benefit is where your employer includes the value of the taxable benefit as part of your pay. This is an alternative to including the value of the benefit in your PAYE code. So if your employer includes the benefit in the payroll, it should not be in your tax code as well
- Week 1 and Month 1 tax codes – HMRC no longer tells employees if their tax code is being operated on a Week 1 or Month 1 basis (M1 /W1). This could mean you pay too much tax – particularly if you are new to employment (for example, you have previously been a student, on a career break, or were self-employed)
M1 /W1 codes should normally only be used for a couple of months. If you think you might be incorrectly on a M1 / W1 code, you should ask your employer before you contact HMRC to get the code changed. The way these codes operates is described on the New employee page
