Emergency Tax Explained
Emergency tax commonly occurs when HMRC hold insufficient information on your income and tax details for the tax year. This means that the correct tax code is unavailable; therefore you will be issued with a temporary emergency tax code.
Reasons why you may have an emergency tax code
- You have recently started a new job and haven’t got a P45 from your previous employer.
- You have started your first job.
- You have started in PAYE employment after previously being self-employed.
- You have started receiving company benefits such as a company car.
- You have started receiving the State Pension.
What is an emergency tax code?
When you are emergency taxed, you will be given a temporary emergency tax code. Your employer will use this to determine how much tax to deduct from your wages. This will be used until HMRC have sufficient information to work out your correct tax code.
How to tell if you have an emergency tax code
You can tell if you have an emergency tax code by checking your pay slip. If your tax code is one of those below, you are being emergency taxed.
- 1100L W1
- 1100L M1
- 1100L X
- BR (20% tax)
- 0T (40% tax)
How much is emergency tax?
While you are on an emergency tax code beginning with 1060L you will be given a Personal Allowance. You will pay tax on all income above this amount (currently £10,600 for tax year 2015/16). This will be the correct amount of tax for most employees as it assumes that you are entitled to either 1/12 (1060L M1) of the allowance each month, or 1/52 (1060L W1) if you are paid weekly. These tax codes are ‘non-cumulative’ and based only on the current pay period.
If you have been given a BR tax code, you will be taxed at the 20% basic rate and will not receive a Personal Allowance.
Those with an 0T tax code will be taxed taking into account the basic rate, the higher rate, and the additional rate. This tax code only affects those whose earnings exceed the basic rate tax band. If you have an 0T tax code you will not get any Personal Allowance until you have been issued with the correct tax code.
You should review your P60 at the end of the tax year in order to identify whether you are eligible for a tax refund. Overpaid taxed can be reclaimed from HMRC.
Correcting your tax code
Once you have provided your employer with your P45 and/or details of your previous income and tax paid, your tax code will be updated automatically. HMRC will then send you a PAYE Coding Notice containing your new tax code. When you next receive a payslip from your employer, this should show your new tax code as well as any adjustments that have been made to your pay (if you were paying an incorrect amount of tax).
If you think that you’re tax code is still incorrect, you should contact HMRC.