What is emergency tax?
If you’ve ever been employed, then there’s a good chance that you’ve paid emergency tax at some point. It can be a huge worry as when you pay emergency tax, it’s often more than you would normally pay out in tax each month. When money’s tight, having that extra deducted from your pay slip can be incredibly frustrating and you might be wondering if and when you’re going to be able to claim that money back.
We’re going to take a look at some of the most commonly asked questions around the subject including what is emergency tax, why you might be placed on emergency tax, how much you might pay and how to know whether you are paying emergency tax.
What is emergency tax?
Everybody who earns over a certain amount will need to pay tax on any earnings over and above their personal allowance. When you start a new job and HMRC don’t have enough information to allocate you with a tax code, they allocate an emergency tax code instead. They do this to ensure that you are making contributions towards tax and national insurance whilst they work out how much tax you should be paying going forwards.
Why might I be placed on emergency tax?
There are a few reasons why you might be placed on an emergency tax code.
It’s your first job
When you start your very first job, HMRC doesn’t have enough information about you in order to allocate you with the correct tax code. Because of this, you will often be placed on an emergency tax code initially until they figure out how much tax you should actually be paying. Sometimes this can be resolved with a call to HMRC whilst in other cases, you might need to wait until the end of the tax year before you receive your refund.
You haven’t received your P45
When you leave a job, your old employer should issue you with a P45. This shows your new employer how much you’ve earnt this tax year so far and how much tax you’ve paid. This allows them to make sure that you are put onto the correct tax code and avoids the need for an emergency code.
You’ve just started to receive your state pension or make a withdrawal from your pension pot
In some cases, you will pay emergency tax when you make a withdrawal from your pension pot or when you start to receive your state pension. This happens because your pension provider doesn’t know how much tax you’ve already paid in the tax year.
Paying emergency tax on lump sums can sometimes be avoided if you give your pension provider your P45 or contact HMRC in order to get an up-to-date tax code.
You’ve just started work as a PAYE employee after being self-employed
When you switch from self-employed to PAYE, you won’t be issued with a P45 which can make it tricky for your new employer to know the correct tax deductions to make from your salary.
You are in receipt of company benefits such as a company car
Many people don’t realise that company benefits such as company cars and healthcare plans are actually taxable in the UK. Before I left my job to focus solely on blogging, I worked 35 hours per week as an employed proofreader and my employer enrolled me on their healthcare plan. Although I was PAYE, I was responsible for declaring this on my tax return and ensuring I was paying tax on this benefit.
Sometimes, being in receipt of company benefits can trigger an emergency tax code.
You claim marriage allowance and HMRC haven’t recognised that
If you’re on a lower income, you can transfer some of your personal allowance to your partner. This is called marriage allowance and means that your partner can take advantage of your unused personal tax allowance in order for your household to pay less tax. If HMRC aren’t aware of this, they might place you on an emergency tax code whilst they look into it.
How much is emergency tax?
The amount of tax you pay will vary depending on a number of different factors, so it’s impossible to give you a figure and you may be in for a bit of a shock when your pay hits your bank account.
Emergency tax codes for 2022/2023
If you’re paying emergency tax, then you will be allocated with an emergency tax code. These change each year. For the year 2022/2023, these are the emergency tax codes:
- 1257L W1
- 1257L M1
- 1257L X
Whilst these codes may look confusing, it’s fairly simple to break them down. The code 1257L is the code that most people in the basic rate tax band will see on their pay slips. This means that the first £12,570 of their earnings in the current tax year are tax-free. Anything above that amount will be subject to income tax:
- 20% tax on earnings from £12,571 up to £50,270
- 40% tax on earnings from £50,271 to £150,000
- 45% tax on earnings from £150,001 upwards
If you have W1, M1 or X after your tax code, then things get a little more complicated. Straightforward tax codes without these suffixes are cumulative meaning that each tax payment takes into account the tax you’ve already paid in the current tax year. When you have W1, M1 or X at the end of your tax code, these are non-cumulative payments, meaning that any previous payments are not included in your tax calculations. This usually means that you overpay your tax when you’re on an emergency code.
Why does my tax code end in W1, M1 or X?
A tax code ending with W1, M1 or X is an emergency tax code. If you see any of these on your pay slip then you’re paying emergency tax.
- W1 will be applied if you’re paid weekly
- M1 will be applied if you’re paid monthly
- X will be applied if your pay doesn’t fall into a standard pattern
How do I know if I’m paying emergency tax?
The first sign you’ll probably see that you’re paying emergency tax is that you receive less when your pay hits the bank. When your payslip arrives, you will then be able to see whether you’ve been allocated with an emergency tax code.
How do I stop paying emergency tax?
To avoid paying emergency tax in the first place, update HMRC with your new job or pension details as soon as possible. You will need the name and tax registration number for your new employer or pension provider. You can do this either over the phone or by updating your details in your online HMRC account.
If you can provide your new employer with your P45 quickly, then this will also help to avoid paying emergency tax. But it’s not always that easy. However, as soon as your new employer has this, you should then be placed on the correct tax code and stop paying emergency tax.
What is emergency tax FAQs
If you still have some questions about what is emergency tax, then here are the answers to some of the most frequently asked questions.
Can I claim back emergency tax?
Usually, you won’t need to actually claim a tax refund. Any overpaid tax will be automatically levelled out in your upcoming pay.
Can I stop paying emergency tax without a P45?
If you’re struggling to get a P45 from your previous employer, then contact HMRC as they can issue one for you.
How do I avoid emergency tax on a new job?
- Make sure you get hold of your P45 from your previous employment as quickly as you can.
- Contact HMRC if you think you may end up paying emergency tax.
How can I tell if I’m due a tax rebate?
At the end of each tax year, you will receive a P60. This will show how much tax you’ve paid throughout the year as well as how much tax you should have paid. If you’ve overpaid, you’ll receive a refund.
What is emergency tax?
To sum up, emergency tax is an emergency rate that’s applied to your pay until HMRC and your new employer have all of the details they need in order to allocate you with the correct rate. The emergency tax rate is usually higher than you would normally pay so HMRC can ensure you’re making contributions.
