What is emergency tax?

Emergency tax tends to happen when HMRC don’t have the correct or sufficient information about you and your income and tax details. As they don’t have the information they need, the correct tax code that you should be on will be unavailable – which means you will be issued with an emergency tax code.

When you leave a job you should be issued with a P45, which shows how much you’ve been paid and how much you’ve been taxed so far in the current tax year. The P45 will also provide your tax code – which is needed by your new employer. If you are not given a P45, or fail to give it to your new employer, then an emergency tax code will have to be used until your employer finds out what tax code you should be on.

Tax refunds

Tax returns

Why do I have an emergency tax code?

There are several reasons why you may have been issued with an emergency tax code, including…

You have just started a new job and haven’t received a P45 from your previous employer

You have just started your first job

You have just started in PAYE employment after being self-employed

You have just begun to receive taxable company benefits like a company car

You have just started getting the State Pension

How can I tell if I am on an emergency tax code?

The first anyone ever tends to know they are on an emergency tax code is when they first get paid and they realise they are paying much more tax than before.

If you suspect you have been put on an emergency tax code then you can find out for sure by checking your payslip. If the tax code listed on the pay slip is any of the below then you are being emergency taxed:

1100L W1

1100L M1

1100L X

BR (20% tax)

0T (40% tax)

What to do if you are on emergency tax

If you are on any of the above emergency tax codes then you will need to provide your new employer with a P45 or details of your previous income and tax payments. Once this has been submitted HMRC will send out a PAYE Coding Notice which will list your new tax code, which should then be on the next payslip you receive from your employer.

For more details apply online or call 0333 240 6122

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.