If you are in employment or receive pension income, you will soon be receiving a 2019/20 PAYE coding notice from HMRC, if you have not already received one.
PAYE coding notices come in the form of a letter received by post, or alternatively, you can check on your Self Assessment personal account with HMRC. This notifies the taxpayer of the PAYE code to be operated against their employment or pension income. It is important to check your code and ensure it is correct.
For the 2019/20 tax year, the basic personal allowance will be £12,500. This means that during 2019/20, a taxpayer will need to receive taxable income over £12,500 before they pay any income tax. For most people, their tax code in 2019/20 will be 1250L – the Personal Allowance they are entitled to divided by 10. The PAYE code should include the full Personal Allowance unless you are not entitled to it e.g. your taxable income is estimated to exceed £100k.
From April 2019, the threshold at which the higher rate of tax becomes payable will also be raised, meaning that you will be able to earn up to £50,000 before falling into the 40% band. This applies to all taxable income, not just earnings from your main employment. The rates for the 2019/20 tax year are:
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,500||0%|
|Basic rate||£12,501 to £50,000||20%|
|Higher rate||£50,001 to £150,000||40%|
|Additional rate||over £150,000||45%|
However, in addition, please also be aware of the stealthy increase in effective tax rates where the personal allowance is lost (where taxable income falls within the £100,001 – £125,000 band), and where the high income child benefit charge applies.
Unfortunately, if your PAYE code is incorrect you could end up paying too much or too little tax. If you pay too little tax, this can lead to unexpected tax liabilities at the end of the tax year, or if you pay too much tax this will likely result in a cash flow disadvantage. This can often happen if you have more than one source of income.
HMRC’s full guide on how to decipher your tax code can be found online here.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.