Martin Lewis warns people need to check payslips this month as 'millions are wrong'
Wrong tax codes from as far back as 2020 could be worth a small fortune, but need to be claimed by April 5.
In the last episode of the current series of The Martin Lewis Money Show Live, the consumer champion urged everyone to check their payslip before the new financial year begins on April 6, as “millions of them are wrong”. Martin also explained that any opportunity to claim back money owed to you by HM Revenue and Customs (HMRC) from 2020/21.
He urged people to “urgently check” if their tax code is correct on their latest payslip and also accurate for the 2020/21 financial year. Martin told the audience how your tax code tells your employer or pension provider what tax to take from you.
The Personal Allowance has been frozen at £12,570 since the 2020/21 financial year, and is the most common tax code. This appears on payslips as ‘1257L and is the amount of money you can earn without having to pay tax - but millions are wrong.
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“You may have overpaid hundreds or thousands of pounds in 2020/21, this is your last opportunity to check if that’s right.”
He then urged viewers to go online and use the many free tax code calculators to help identify whether yours is right or not.
Martin warned that if you have overpaid tax, you will not be able to claim back as far from April 6.
You can catch up with the Martin Lewis Money Show Live on the STV Player or ITVX.
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How to check your tax code
The easiest way to do this is to look at your payslip. Once you have a note of your Personal Allowance tax code, you can go to the GOV.UK website and use the online “Check your Income Tax for the current year" service.
This tool, which covers the current tax year, can be used to check your tax code and Personal Allowance, and to see if a tax code has changed.
Other options available through this online service include allowing people to see an estimate of how much tax they will pay over the whole tax year. However, the service cannot be used by self-employed workers.
The GOV.UK website explains: "You cannot use this service if Self Assessment is the only way you pay Income Tax.”
What the tax code numbers mean
The numbers in an employee’s tax code show how much tax-free income they get in that tax year, this is known as your Personal Allowance. You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed.
For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £30,000 per year, taxable income is £17,430 (£30,000 - £12,570).
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What the letters mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance. The full list of tax code letters and what they mean can be found on the UK.Gov website here.
Most commonly used letters:
- L - For an employee entitled to the standard tax-free Personal Allowance
- S - For an employee whose main home is in Scotland
- BR/ SBR - For a second job or pension
- M - For an employee whose spouse or civil partner has transferred some of their Personal Allowance
- N - For an employee who has transferred some of their Personal Allowance to their spouse or civil partner
- T - When HMRC needs to review some items with the employee
If your tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, for example ‘577L W1’ or ‘577L M1’.
The tax code letter ‘K’ is used when deductions due for company benefits, State Pension or tax owed from previous years are greater than their Personal Allowance.
