How to check your 2019-20 PAYE code

Each individual’s PAYE code determines how their employment income is taxed.  The PAYE code normally includes a tax free element to make use of an individual’s personal allowance if they are entitled to one. If the code isn’t correct it can result in under- or over-payments of tax.

The basic PAYE code for the 2019-20 tax year, which runs from 6 April 2019 to 5 April 2020, is 1250L and incorporates a tax-free personal allowance of £12,500.  This is the PAYE code that you may start to see on your payslips from April 2019 onwards.  HMRC do not normally send out a notification if you are on the basic PAYE code.

However, if your tax code is different to the basic code of 1250L, then you should have received a ‘PAYE Coding Notice’ (form P2) from HMRC. This notice is sent to both you and your employer and/or pension provider so that they are notified of the PAYE code that they need to operate for you.  You can also check your PAYE code via your personal tax account with HMRC here.Continue reading

National Minimum Wage and National Living Wage Rates 2019-20

The National Living Wage is applicable to all employees aged 25 and over.  The rate increased to £8.21 from 1st April 2019.  The National Minimum Wage applies to all other employees under 25.  The table below summarises the National Minimum Wage and Living Wage rates for the year commencing on 1 April 2019 and these are the minimum hourly rates that employees are entitled to by law:

Date 25 and over 21 – 24 18 – 20 Under 18 Apprentice
1 April 2019 £8.21 £7.70 £6.15 £4.35 £3.90

The apprentice rate applies to apprentices under the age of 19, or to those aged 19 and over but in their first year of apprenticeship.

Note that the above rates do not apply to the self-employed.

What do I need to consider when choosing an accountant?

Anyone can call themselves an ‘Accountant’ or ‘Tax Advisor’ as these terms are unregulated.  Even HMRC do not currently require any specific qualifications for a person to become a tax ‘agent’.  This means that it is up to the client to ensure that they choose an accountant or tax advisor who is professional, technically able and with strong ethical standards.

The first thing to look out for is whether they have a professional qualification and belong to a professional supervisory body.  Many of the stronger qualifications require years of studying and experience with a commitment to maintain and refresh that knowledge regularly if they are to keep the right to that qualification. If an accountant has any qualifications this should be obvious from their business stationery and/or website.  There are all sorts of accountancy bodies and various initials that you will come across but it is essential to look for a qualification and membership of one of the following professional bodies:  Institute of Chartered Accountants in England & Wales (ICAEW), Association of Chartered Certified Accountants (ACCA) or the Chartered Institute of Management Accountants (CIMA).  Membership of these bodies can be identified with the ACA, ACCA or CIMA initials after the accountant’s name.Continue reading

How individuals could benefit from the marriage allowance

The marriage allowance enables 10% of one spouse’s annual personal allowance to be transferred to the other spouse, if certain conditions are met.

The marriage allowance could save married couples and civil partners £212 tax

The marriage allowance could save married couples and civil partners £230 tax

The marriage allowance is applicable to both married couples and those in civil partnerships and means that an individual not utilising their annual personal allowance could transfer a portion of that allowance to their spouse or civil partner.  The 2017-18 personal allowance is £11,500 and so 10% or £1,150 of this amount is potentially transferable, saving £230 in tax.  In order to qualify for the transferable allowance, one partner must have income between £11,501 and £45,000 and the other must have income below the annual personal allowance of £11,500.  Income includes earnings from all sources such as employment, self-employment, pensions, rental properties, interest and dividends.  The marriage allowance will not be available if either one of the partners is a higher rate taxpayer.Continue reading

Why have I received a P800 tax calculation letter from HMRC?

P800 tax calculation letter

Why have I received a P800 tax calculation letter from HMRC?

After the end of each tax year HMRC review the income and PAYE information that they receive from employers, pension providers and banks to ensure that the correct amount of tax has been deducted from an individual’s income.  In most cases, the correct tax has been deducted, with no further action required.  However, in some cases HMRC discover that the correct tax hasn’t been paid, which means they will send a P800 tax calculation letter to the individual concerned to notify them of the shortfall or excess tax paid.  The letter is normally sent sometime between June and September following the end of a tax year.

Discrepancies in the amount of tax paid are likely to be caused by a change in jobs, working for multiple employers or receiving pensions from several sources.

If you receive a P800 calculation it is important to check the calculation to ensure that you agree with it. HMRC don’t always get it right!  Check the calculation against the following documents as appropriate:  P60, P45, P11D, tax deduction certificates from banks, dividend vouchers and a PAYE coding notice if you received one (refer to our blog on PAYE coding notices here).

In many cases underpayments arise due to incorrect PAYE codes or employer mistakes.  If you disagree with HMRC’s calculation it is important to challenge it by contacting HMRC.  If your employer made a mistake without taking ‘reasonable care’, HMRC may ask them to pay the tax instead.  If HMRC is at fault you will still have to pay the tax, unless they made mistakes in prior tax years too, in which case it may be possible to get the tax liability cancelled.

How the employment allowance benefits small businesses

A new ‘Employment Allowance’ became available from 6 April 2014 to cut up to £2,000 of employer’s class 1 national insurance contributions per year on employees’ or directors’ earnings.  It is important to point out here that employer’s class 1 national insurance is a direct cost to employers on top of an employee’s gross salary and this will therefore be a very welcome tax break for small businesses.

Banknotes

The allowance is available to businesses or charities of all sizes with one or more employees.  There are specific rules for groups of companies and charities under common control as well as for employers running more than one PAYE scheme so that the employment allowance is only available once.  Certain employers such as carers and nannies cannot claim the allowance.

The allowance can be offset against the employer’s national insurance liability each week or month until the full £2,000 is used up.  This could mean that some employer’s will benefit from the full £2,000 allowance in the first month of the tax year while other smaller employers will benefit gradually throughout the year.Continue reading