What affect does emergency tax have on me?
The emergency tax code basically means you are only entitled to the basic personal allowance and does not take into account any other allowances, reductions or tax relief that you may be entitled to.
Another tax code to be aware of is BR – if you have a BR code then you will not be getting any tax-free Personal Allowance.
It’s important to bear in mind that any emergency tax code is supposed to be temporary, if you are on emergency tax and don’t know why then get in touch with us for help and advice.
The big affect emergency tax can have is that your earnings could be taxed at 50%. It will never be more than 50% as that is the maximum monthly amount that can be collected under PAYE – but that is scant consolation to someone who is losing half of their wages to emergency tax.
It happens because normally the PAYE is calculated on a cumulative basis – meaning your employer takes into account the following when calculating your wages:
- all the tax you have paid in the tax year to date
- what amount of your salary falls under each tax bracket
- any personal allowances you are due
When you have an emergency tax code your employer will not have access to this information, so you pay tax on everything and with no allowances as if you have not yet paid any tax in the current tax year.
How much is emergency tax?
When you are on a tax code that begins with 1060L, you will still be given a Personal Allowance. This means you will pay tax on any income you receive that is over the Personal Allowance amount (£10,600 for tax year 2015/16).
This is the correct amount of tax for most people as it assumes that you are entitled to either 1/12 (1060L M1) of the allowance each month, or 1/52 (1060L W1) if you get paid weekly. These tax codes are ‘non-cumulative’ and based only on the current pay period.
If you have been issued with a BR tax code, then you will not receive a Personal Allowance and you will be taxed at the 20% basic rate.
If you have an 0T tax code then the amount you pay in tax will take into account the basic rate, the higher rate and the additional rate. These tax codes only usually affect people who have earnings that exceed the basic rate tax band.