Do you have the correct Tax Code?

Thursday, 13th May 2010 16:44 - by Resident IFA

My dear Mum recently celebrated her 65th birthday. It dawned on me that she is now entitled to an enhanced Personal Tax Allowance – the amount of money she can ‘earn’ before paying tax. The allowances for the 2010/2011 tax year:  Under 65 years = £6,475  65-74 years = £9,490  75 & over = £9,640 Apparently, Her Majesty’s Revenue & Customs (HMRC) should have posted a P161 form out for completion and return approximately 1 month before her 65th birthday. Let’s tactfully assume it got lost in transit... Of course, any over-paid tax would be refunded. Failure to fill out this form can mean that a Pensioner pays too much (or too little) tax. A basic giveaway for someone over 65 is that their code should change from an ‘L’ suffix to a ‘P’. You can have more than one tax code if (i.e.) you have more than one Pension income. I have concentrated on people aged 65 or over here, but ensuring you are taxed at the correct rate is a basic part of financial planning in my opinion. For instance, you might have started a new job, your employer placing you on an ‘emergency’ tax code. This code could affect you in that it does not take into account allowances or reliefs you might be entitled to above the basic personal allowance. I prefer to not link away from lse, although HMRC’s website is a must-view if you are unsure if you are being taxed correctly - http://www.hmrc.gov.uk/incometax/check-right-tax.htm The Low Incomes Tax Reform Group (LIRTG) would approve! Until next time...