HMRC issues overpayment warning that low earners could face 25 per cent tax rate

HM Revenue and (HMRC) has issued an alert about a common situation that can lead to taxpayers getting the incorrect tax code and overpaying tax. The concern was brought to light when a taxpayer reached out, perplexed by the substantial deduction from their wage.

They queried: "I got paid £384.78 after taxes it was £511 before. Why is it deducted that much is it emergency tax?" In response, HMRC inquired about which tax code had been used for the payment by the employer.

The taxpayer indicated they were on tax code 0T but believed they should be on 1257L. Typically this is the tax code for individuals if they have one job with one employer, meaning they have the full personal allowance and are exempt from income tax on the first £12,570 earned each year.

Upon being queried for further details, the individual revealed they commenced work with their employer in September and hadn’t been employed or received a P45 since the 2022/2023 tax year. When questioned whether this was their initial job since the new tax year began on April 6, they confirmed it was indeed.

Issuing some advice on tax codes in response, HMRC explained: "Most employers use a 0T tax code when they unsure what your tax code should be. In that case, you'll need to contact our helpline to update your tax code.

"When your employer uses the new tax code, it will calculate any overpaid tax and refund in your pay." If an individual is assigned the 0T tax code, it signifies that they have no personal allowance and will be taxed on their entire income, regardless of how small it may be.

This code is typically used when an employee has not provided sufficient information for their employer to determine their tax code. HMRC also pointed the taxpayer to a webpage where they can find information on how to raise a query about income tax.

The HMRC helpline can be reached at 0300 200 3300 or queries can be submitted through the Ask HMRC online portal. Alternatively, individuals can set up a personal tax account on the Government website to view their tax code and projected income tax payments for the current tax year.