Tax warning as payslip 'mistake' could see you pay more of your salary to HMRC

Your tax code dictates how much of your income is taken in tax and it can be possible for your tax code info to be inaccurate or out-of-date without you realising it - this would result in incorrect taxes being taken from your wages and pensions

Brits have been urged to check their tax code as a "costly mistake" could see their monthly take home pay cut.

The warning has been issued by analysts from Digital ID who have urged workers to check whether their tax code is right. This is because it can be possible for your tax code info to be inaccurate or out-of-date without you realising it. This would then result in incorrect taxes being taken from your wages and pensions.

Tax codes are made up of a series of numbers and letters and are assigned to you by HMRC based on the information it has on your income. This information is provided to HMRC by your employer or pension provider. The code dictates how much of your income is taken in tax and everyone who is paid through PAYE has one.

Adam Bennett, a workplace expert at Digital ID said: “If your tax code results in too much tax being deducted, you might receive a smaller paycheck and could struggle financially until you reclaim the excess tax. A wrong tax code could also mean you're underpaying tax, leading to a surprise bill from HMRC later, possibly with interest and penalties. Incorrect deductions reduce your disposable income, impacting your ability to manage expenses or save.”

Have you managed to claim back money from HMRC after an incorrect tax code? Let us know: mirror.money.saving@mirror.co.uk

To make sure your tax code is correct, you should be aware of what the different tax codes are, the numbers represent how much you earn tax free, which is just the personal allowance and the letters relate to a taxpayer's situation and how it alters the personal allowance. The letters include:

• L - You’re entitled to the standard tax-free personal allowance
• 0T - No personal allowance
• BR - All income from this source is taxed at the basic rate
• DO - All income from this source is taxed at the higher rate
• D1 - All income from this source is taxed at the additional rate
• K - Total deductions exceed their allowances
• M - Marriage Allowance receiving 10% of their spouse or civil partners’ personal allowance
• N - Marriage Allowance providing 10% of their unused personal allowance to their spouse or civil partner
• NT - No tax is due on this income
• C - Paying income tax in Wales
• S - Paying Scottish rate of Income Tax in Scotland
• T - Tax office needs to review the tax code or to keep personal details confidential
• W1 or M1 - Emergency tax codes for week one or month one depending on when a person gets paid.

The most common tax code is currently 1257L, and this is used if you have one source of income - either through a job or pension. Those with this tax code can earn £12,570 a year, which is currently the standard personal allowance, before paying income tax. Tax codes start with an “S” in Scotland and a “C” in Wales.

You can find your tax code on your payslip, a P45 if you have recently left a job or a P60 if it is the end of a tax year - you can also find your tax code online at Gov.uk. The official line from HMRC is that it is each individual's responsibility to check they are on the right tax code so if you think your tax code is wrong, you need to contact HMRC directly.

If tax has been overpaid, then HMRC will contact your employer and it will be refunded in your next payslip. However, if the tax refund is due for a previous tax year you'll usually be sent a cheque for the amount and you can claim back up to four tax years worth of overpaid tax. If you have underpaid tax due to the result of an incorrect tax code then HMRC will work to recover the tax you have underpaid. If you are unable to pay all the amount back at once, then you can set up a payment plan with HMRC.

Adam Bennett added: “Keeping an eye on your tax code and understanding its implications is essential for managing your finances effectively. Mistakes can happen, but by staying proactive and informed, you can catch errors early, avoid unexpected bills, and ensure you’re not paying more than you should.”