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5 Min. Read

What Is the Emergency Tax Code? A Tax Code Guide

What Is The Emergency Tax Code? A Tax Code Guide

When you get your paycheck, you have certain expectations. You know your pay rate, and you know how much you should receive. When your cheque is suddenly smaller, it’s a matter of concern. One reason your pay may have shrunk is because of an emergency tax code. This will be visible on your check as an alphanumeric code.

What does this mean, and how can you fix it? We’re about to talk about how emergency tax codes work, and what they mean for you.

Here’s What We’ll Cover:

What Is the Emergency Tax Code?

If I’m in the Emergency Tax Code, Will I Be Notified?

What Does My Emergency Tax Code Mean?

Key Takeaways

What Is the Emergency Tax Code?

An emergency tax code is a code applied by HMRC when it the lacks necessary information. Without correct personal details, you’ll be taxed at one of the government’s emergency tax rates. You might also miss out on allowances that would otherwise save you money.

Most of the time someone is put on an emergency tax code, it’s because they just started work with a new company. For some reason, there’s a mix-up in the paperwork, or somebody makes a mistake. HMRC doesn’t get your personal information, and they have to use an emergency code.

That’s the most common reason. Other reasons include:

  • You’ve recently started getting benefits from your job, or your benefits have ended.
  • You’ve started a new job after being self-employed.
  • You claim marriage allowance, or receive tax relief for certain expenses.
  • You receive state benefits that are subject to tax.

What happens next depends on the information HMRC already has. Depending on what they know, you’ll either be charged the basic rate of 20%, or a higher, 40% rate. Similarly, you may or may not be taxed on your entire paycheck. Normally, you would be taxed only on income that exceeds the personal allowance of £12,570.

It’s important to note that emergency tax codes are a temporary measure. HMRC will ask your employer for whatever information it is missing. Once they know more about the kind of work you do and how much you’re earning, the code will be removed.

We should also stress that these codes apply only to personal income tax. They do not apply to corporate taxes, VAT, or other types of tax.

If I’m in the Emergency Tax Code, Will I Be Notified?

When HMRC places you under an emergency tax code, the code will be printed on your payslip. The location may vary, but it’s normally located near your national insurance number.

Under most circumstances, HMRC will make an adjustment when they have enough information about your income. However, if the tax deadline is approaching, you may want to reach out to the tax office.

What Does My Emergency Tax Code Mean?

So, there’s a code on your cheque. What does it mean? Here’s a quick rundown of the various codes:

  • M1 and W1 are very similar. They both mean that HMRC will calculate your tax based on the current period, rather than your year-to-date earnings. The only difference is that W1 is for employees who receive weekly cheques, while M1 is for monthly cheques.
  • Some codes begin with the numbers 1257. This indicates that you’ll be subject to the ordinary tax-free allowance of £12,570. For most employees, this will be accurate. That said, you may be entitled to retroactive allowance from unemployment. In that case, you’ll be missing out as long as you have the wrong tax code.
  • A BR at the beginning of your code means that you won’t get any allowance at all. Everything you earn will be taxed at the basic rate of 20%.
  • An OT code is similar to the BR code in that you won’t get any allowance. However, it means you’ll be taxed at a higher rate of 40%. This can be distressing if you don’t earn very much to begin with.

If you’re an employer, emergency tax codes can cause headaches for human resources. As a result, it’s best to nip any potential trouble in the bud. PAYE services for payroll and double-entry accounting software can help your employees get the right code from day one.

Key Takeaways

An emergency tax code might cause momentary concern, but there’s no need for long-term consternation. As you can see, all of these codes are straightforward and easy to understand. Not only that, but they’re temporary. At the end of the day, an emergency tax code is just a minor, short-term inconvenience.

If you liked this guide and want to read more like it, take a look at our resource hub. It’s filled with dozens of articles on a number of business-related subjects. If you’re trying to build a successful business, you’ll find a lot of value there.