The thorny subject of tax will be at the forefront of Government policy for years to come once Britain's lockdown restrictions are lifted and the pandemic subsides.
Taxpayers will be left bearing the brunt of the economic fallout from Covid-19, which has seen mass pay cuts, job losses, furloughing and vast loans dished out to businesses by the Government.
Some experts are predicting that income tax and tax for the self-employed could go up in future, while others believe the triple lock on pensions could be broken.For the moment, we are still in the early stages of the new tax year and it pays to know what to look out for on your payslip to ensure you are paying no more tax than you need to.
What is a tax code?
The new tax year started on 6 April and millions of UK full-time and part-time workers and those with a private employer pension have been issued with a tax code.
This short configuration of numbers and letters might look harmless enough, but if it is wrong you could end up paying hundreds or thousands of pounds more in tax to HM Revenue & Customs than you need to. The numbers and letters comprising a tax code determine how much tax you pay and how much money will be deducted from your pay before it even hits your bank account or pension pot.
You should be able to find your tax code on your payslip, as well as your annual P60 tax summary and, if you leave a job, your P45 form. If you are receiving a private pension, you should get an end of year certificate from your pension provider telling you what tax code they are using.
What is this year's most common tax code?
This year, the most common tax code in the country is 1250L.
The 1250 part of this means that you have a tax-free allowance of £12,500 for the year. Put simply, you can earn £12,500 before HMRC starts taking its cut.
Personal allowances vary and can be more than this, if, for example, you claim Blind Person's Allowance or Marriage Allowance.
The amount of income tax you pay, however, will also depend on how much money you earn. Taxpayers currently pay an income tax rate of 20 per cent tax on the portion of their income between £1 and £37,500 above their personal allowance.
In the band above this, people pay an income tax rate of 40 per cent on the portion of their annual salary between £37,501 and above, up to £150,000.
For £150,000 or more, the income tax rate is 45 per cent, and people earning £125,000 or more a year do not get an annual personal allowance.
What do the letters mean?
Now that we know what the numerical part of the most common tax code means, what about the letter or letters after it?
These can refer to a number of factors, but generally refers to someone's age and what rate their employment is taxed at.
'L' is the most common letter in tax codes used this year and means someone is eligible for the standard £12,500 personal allowance.
Meanwhile, a number and a letter 'T' means your tax code includes other elements such as a company car benefit, which would restrict your personal allowance.
'0T' means your annual personal allowance has been used up so you start paying tax at the basic rate on your income.
'This code is often used if you have started a new job and your employer does not have the details they need to give you a tax code,' said PwC tax specialist Quentin Holt.
The tax code letters 'BR' means someone's entire income is taxed at the 20 per cent basic rate. This is often used on second jobs or pensions.
If you see 'K' plus a number on your tax code it usually means your personal allowance has been used up and your code is collecting additional tax due on other taxable benefits, or tax you should have paid in years gone by.
In another configuration to get your head round, PwC's Mr Holt said: 'If you have W1 (Week 1) or M1 (Month 1) at the end of your code, this means that you are not being taxed cumulatively but only on the amount you have earned that week or month.
'This means that the coding cannot adjust your withholding for changes in circumstances or errors from earlier in the tax year so your final tax position at year end could well be wrong.'
Finally, if you see the letters 'NT' at the end of your tax code, lucky you, it means no tax will be deducted from the income stream in question. This is often used for people living and working abroad.
When are tax code problems likely to happen?
There are several ways in which your tax code could be wrong.
PwC's Mr Holt said: 'The PAYE tax coding system usually works well if you are in the same job for the whole tax year and your circumstances don’t change.
'However, there are a number of scenarios which can cause particular issues for taxpayers and lead to significant tax overpayments/underpayments at year end.'
Changing jobs, getting your first job, having a second job or becoming unemployed are all likely to all affect your tax code.
First things first, watch out for emergency tax codes if you get a new job.
PwC's Mr Holt said: 'Employers often put new joiners on an emergency tax code which may not give you your full personal allowance.
'Codings generally assume a full year’s employment and may not adjust correctly if you only work for example, for half the year.
'This would also apply if you return from working abroad during the tax year and only your earnings after you return are liable to UK tax. This could also be an issue if you go on maternity leave.'
If you have more than one job, the tax code system often struggles to assign the correct code to both jobs, particularly if you change jobs during the year or have a fluctuating income.
What's more, if you have to give up your company car or scrap your employer-derived private medical insurance this year, your tax code could also be affected and end up being incorrect.
People who have retired, but still have other sources of income also need to be careful and take a look at their tax codes.
Mr Holt said: 'The state pension is not subject to tax withholding, but it is still taxable if your total income is over the personal allowance.
'In these circumstances, HMRC uses your tax code to collect the tax on your state pension but unless the information they have is complete and correct, there will be errors.'
To sum up, there are lots of circumstances which could lead to you being lumped with the wrong tax code, including, but not limited to, losing your job, starting a new job, getting your company car tax axed and having multiple sources of income.
Will being furloughed affect my tax code?
Over 6million British workers spanning 800,000 companies have been furloughed since the pandemic started.
The Government, or more bluntly, taxpayers, are paying 80 per cent of people's pay packets up to £2,500 a month while the furlough scheme continues.
Being furloughed or taking a temporary pay cut should, generally, not affect people's tax codes, Joanne Walker, a tax expert at the Low Incomes Tax Reform Group, said.
Most people shouldn't need to contact HMRC to ask them about their tax code if they have been furloughed.
But, there are exceptions.
If you work for another company while on furlough then you and your new employer will have to take extra care to ensure HMRC still has up-to-date-information about you.
Company payrolls should tick box 'C' when they fill in a new joiner form for the taxman.
'It is important that people with more than one job (even if they are on furlough) tick box C. Otherwise they will receive extra personal allowance and are likely to underpay tax during the tax year', Ms Walker said.
Another catch to watch out for if you've been furloughed is if your main employer has been unable to pay you during the crisis and you end up receiving your pay packet for the last few months in a lump sum at a later date.
Ms Walker also explained, 'This may mean that more pay is taxed in a single pay period than usual. However if someone is on a cumulative tax code, any extra tax someone pays as a result of the lump sum, will be adjusted later in the tax year and so should sort itself out in due course.'
Anyone earning over £100,000 a year who has been furloughed also needs to be vigilant. This is because furloughing could affect someone's personal allowance, albeit potentially only on a temporary basis.
'For those who previously earned more than £100K, furloughing may well mean that your pay, at least in the short term, drops below £100K',said PwC's tax guru Mr Holt.
He added: 'You would now be entitled to the full personal allowance and if your tax code had previously restricted the allowance you could end up paying too much tax. When the furloughing ends and you go back to your regular pay, your code should adjust the withholding to get the correct amount by year end.
'However, in the unfortunate event that you were made redundant, this would not be the case and you would need to check whether you are due a tax refund.'
What can you do if your tax code is wrong?
Getting your tax code sorted out is just one step you can take to ensure your financial future is as steady as it can be.
If you are concerned your tax code is incorrect, particularly because your pay or work life has been hit during the crisis, you can use HMRC's online Income Tax Service. This can be used to tell HMRC if your circumstances have changed.
You can also ring HMRC up to check if your code is right. The contact number to use is 0300 200 3300, but expect some long waiting times.
If you need to, you can also send HMRC a letter by post to give them any updates about your employment and check whether or not your tax code is correct. HMRC's postal address is: Pay As You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.
Sometimes tax problems, including troubles with codes, may have occurred over a period of many years. If this is the case and you are struggling to get to grips with it all, it might be worth considering paying an accountant to help you.