On the 6th of April each year the tax codes change to reflect the new personal allowances, or how much you can earn before paying tax or tax at different rates.
The basic rate tax code for 2020 – 2021 is 1250L.
Legislation was introduced in Finance Bill 2018-19 to set the Personal Allowance for 2019 to 2020 at £12,500, and the basic rate limit for 2019 to 2020 at £37,500.
These thresholds will remain set at £12,500 and £37,500 for 2020 to 2021 and will be increased in line with CPI thereafter.
This basically means you can earn £12500 during the year before you start to pay tax at the basic 20% rate.
In Scotland the tax codes and thresholds are slightly different.
During the next few weeks HMRC will issue letters with your new PAYE tax coding. It is actually important to check your code and ensure it is correct, especially if you have received a tax refund in the past.
Unfortunately, if your tax code is incorrect you could end up paying too much, or worse, too little tax. If you pay too little tax HMRC WILL claim it back, even though it’s partly their fault for giving you the wrong code!
As a client of ours, part of our service is to deal with HMRC on your behalf and make sure you pay the correct tax. However, even though we are your tax agent, HMRC DO NOT tell us your tax code, so do please look out for any changes and let us know immediately so we can have it corrected.
You can find out more about our self-assessment tax returns services or just give us a quick call – we’re always happy to answer any questions you may have.