Are you on an emergency tax code?

From time to time, your pension provider or employer may put you on an emergency tax code.  This normally happens when they do not know enough about your income or tax details for the full tax year and whilst HM Revenue and Customs (HMRC) work out what your tax code should be.

Here’s our five step guide to emergency tax codes.

What is an emergency tax code?

Your employer or pension provider will use an emergency tax code until HMRC has enough information about your income to provide you with a correct tax code.

The emergency code normally makes sure that you get the basic Personal Allowance (and therefore some tax-free pay) but doesn’t take into account any other allowances or reliefs you may be entitled to.

The emergency tax code is set each year and is a number followed by the letter L. The number is the basic Personal Allowance (£6,475 for the tax 2010-11) divided by 10. The emergency code for 2010-11 is therefore 647L.

When may I be put on an emergency tax code?

There are several situations in which you may get an emergency tax code:

• You have started a new job but you have had another job/jobs or have received benefits during the tax tear
• You have started a new job and you don’t have your P45 from your previous employer
• There has been a change in your tax code during the year (for example, you may have started to receive the State Pension)
• You have started your first job since the beginning of the tax year
• You have started a new job and you were previously self-employed

What is a ‘cumulative’ emergency tax code?

If you have told your employer that this is your first job since the start of the tax year and that you haven’t received any benefits or taxable pensions you will normally be put on a ‘cumulative’ emergency tax code.

This will give you your full tax-free Personal Allowance over the remainder of the tax year (as HMRC will assume that you haven’t used any of your Personal Allowance as you have not been working).

What is a ‘week 1’ or ‘month 1’ emergency tax code?

You may be put on a ‘week 1’ or ‘month 1’ emergency tax code if:

• Your tax code has been reduced by a large amount
• You have had another job or taxable state benefits during the tax year
• You have a previously used week 1 or month 1 emergency tax code

HMRC assumes that you’ve already received some tax-free income in the period before you started your job or your tax code changed.  So, any remaining tax-free Personal Allowance will be spread over the rest of the tax year.

How do I get on the correct tax code?

Once HMRC has obtained details of your previous income and the tax that you have paid for the tax year, they will send your employer (and you) your correct tax code. Your employer will deduct the correct tax in future and refund any overpaid tax.

At the end of the tax year, you may believe that you have paid too much tax because you have been taxed on an emergency code.  If this is the case, you should claim a refund by contacting your Tax Office.