Why you should always check a new tax coding notice

HMRC can issue a new tax code several times in a single year and it is easy to assume that each one has been checked and is correct.

In practice, coding notices are often generated automatically and can contain errors that go unnoticed for months having a significant impact on a person’s take home pay.

A new code is frequently triggered once a tax return has been submitted, as HMRC updates its estimate of your income and allowances for the current year based on the figures just filed.

Agents can be kept out of the loop

One point worth flagging directly, which many taxpayers don’t realise, is that a coding notice sent to you is not always copied to your accountant or tax agent at the same time or at all.

HMRC’s systems do not automatically keep agents informed every time a client’s code changes, which means a new or incorrect code can be operated by an employer or pension provider for weeks before anyone supporting you has sight of it.

If your code changes and we are not aware of it, we cannot check it on your behalf, which is why responsibility for spotting a wrong code, at least in the first instance, sits with the taxpayer who receives the notice.

What to look out for

When a new coding notice arrives, whether by post or in your Personal Tax Account, it is worth taking a few minutes to check it against what you expect.

Here is what to look out for:

• The personal allowance and any adjustments shown and whether they still reflect your current circumstances.
• Any entries for benefits in kind, such as a company car, private medical insurance or untaxed interest, that may be out of date.
• Whether an estimated underpayment or overpayment from a previous year has been added to the code and whether the figure looks right.
• The overall code itself, checked against your latest payslip to confirm your employer is actually using it.

A wrong code left in place for a full tax year can mean months of overpaid or underpaid tax and underpayments in particular have a habit of arriving as an unwelcome surprise later on.

If you receive a new coding notice and are not sure whether it is correct, send us a copy as soon as it arrives.

We would rather check it with you now than untangle a problem with HMRC further down the line.