Is Your Tax Code Correct?

Is Your Tax Code Correct?

According to recent press reports it has been suggested that four out of five company directors have not been issued with the correct tax code. In essence this means that some directors may pay either too much or too little tax during the year.

Possible reasons offered for this error relate to changes in personal circumstances which may have occurred throughout the year.

Reasons why tax codes could change throughout the year
1. A change to any benefits-in-kind. For example a director may stop or start receiving medical insurance or a company loan.
2. Changes may occur to a pension plan.
3. A director may start or stop using a company car.

As a rule any variation to benefits-in-kind will have a knock-on-effect on tax codes.

Self assessment tax returns

Final tax bills will be calculated at the end of the year when self assessment tax returns are completed. Hence potentially any over payments or underpayments will be adjusted at the end of the year.

What can be done?

There is absolutely no reason as to why tax codes cannot be adjusted throughout the year. Each time personal circumstances change they can be reported to Her Majesty’s Revenue and Custom’s (HMRC). Each adjustment made by HMRC will help to ensure that tax codes remain correct throughout the year.

On the plus side – directors will not be charged interest on underpayments that have genuinely incurred. Hence the tax man could be indirectly giving you a loan!!!

 

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