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What is an Emergency Tax?
An emergency tax is a temporary form of tax levied by the government of the United Kingdom on some citizens. An emergency tax code is applied when the HMRC (Her Majesty’s Revenue and Customs) does not have adequate information on what tax code you fall under. This can happen if you start a new job or start your first job. In this case, the government gives you an emergency tax code until details regarding your correct tax code come into the light.
Even though there are slight problems with the emergency tax system, these taxes are non-cumulative. Meaning they would not take into account the other circumstances such as the tax you owe or the taxes you have already paid for. In addition, an emergency tax code is levied on all your income above your allowances.
When Will You Have an Emergency Tax Code?
There are a number of situations in which you could be given an emergency tax code. These situations are as follows:-
- If you’re starting your first job
- You’ve just started getting the state pension
- Received a taxable benefit from your company like a company car
- If you have just started in PAYE employment after being self-employed
- You began a new job, and your previous employer did not provide you with a P45
How to Know if You are in the Emergency Tax Code?
You can verify your payslip, and if you see the following tax codes on your bill, that would be a piece of conclusive evidence that you are emergency taxed:-
- 1100L W1
- 1100L M1
- 1100L X
- BR (20% tax)
- oT (40% tax)
For How Long Would You Have to Pay the Emergency tax?
An emergency tax is essentially applied when the HMRC does not have enough data to put you in a particular tax band. It only goes just as long as the HMRC has enough details regarding your earnings or your employer sends a P45 to them.
Different emergency tax codes will have other tax implications and determine how much you need to pay.
Tax Codes with M1 or W1
Generally, an emergency tax code that ends with M1 or W1 indicates that your tax is non-cumulative. It suggests that your taxes will be calculated based on your payments during a particular period instead of overall earnings. M1, here, means your tax will be applied monthly, and W1 means that the tax will be applied on a weekly basis.
Codes ending with X
This tax code implies that your pay period does not fit in either monthly or weekly and is somewhat non-standard.
1257 Tax Code
A tax code starting with 1257 indicates that the HMRC will provide a tax-free allowance of £12570 to the individual, crossing which taxes will be applied. For most employees, it is assumed to be a basic personal allowance and states that you are entitled to 1/12th of the allowance each month with the code being 1257 M1 or entitled to 1/52 weekly with code 1257 W1. And if the code is 1257 X, it means you can apply for any of the two.
A 1257 tax code does not take into account any backlog that you may have. You may not be able to avail of allowances if your tax code is not adjusted.
BR Emergency Tax Code
A BR tax code signifies that you receive no tax-free allowance, and hence all your earnings will be accounted for at a 20% rate. BR stands for ‘basic rate.’ In case you have additional sources of income, then there are higher chances of you being in the BR tax code.
If you have an addition of M1 or W1, it indicates that you have an income that is non-cumulative and are on a monthly or a weekly basis accordingly.
OT Emergency Code
If you have earnings that exceed the basic rate tax band, the government may put you in the category of OT emergency tax code. In case your employer does not provide the HMRC with the necessary details, you may be placed under this code.
No attention is paid to the personal allowance, and hence taxes will have to be paid according to the introductory rate, higher rate, and additional rate tax.
How Much Emergency Tax Will You Have to Pay?
The amount of tax you will have to pay will heavily depend upon which tax code is being assigned to you. If you are provided with a tax code that does not include personal allowances, you may lose on a tax benefit for £12570 of your earnings. This will lead to you paying more tax than is necessary.
- Basic rate taxpayers (BR) with an earning not more than £50,270 can end up paying a whopping extra £2,514 in the current year.
- Higher rate taxpayers (OT) will end up paying even more. If they have an earning of up to £100,000, they could end up paying an extra tax of £5,028 in this financial year.
Can I Correct My Tax Code?
There’s not much to worry about, even if you think you have been given a wrong emergency tax code or believe you are not obliged to pay an emergency tax. Here are a few things that you could do to make sure you are not paying extra tax to the government.
You can get your tax code changed by the HMRC by contacting them. To speed up the process, it is advised that you can provide your current employer with a P45. In case you do not have a P45, you can fill up a starter checklist given to you by your employer.
If you think your tax code is not being changed for a while or in the wrong tax code, you could check your emergency tax online and contact HMRC.
The HMRC will also provide you with a refund or a rebate in case you end up paying more tax than you should have.