Changes afoot to PAYE tax codes in 2015-16

The Chancellor announced last year that the base rate figure of tax-free income for employers below state pension age would increase from £10,000 to £10,600 for the 2015-16 tax year; however there are a number of other changes on the horizon for the next tax year to consider.

One ruling in particular will affect couples that are married or in civil partnerships. From April 2015, 10 per cent of the new £10,600 tax-free personal allowance can be moved between partners.

There are limitations to this ruling; with neither person allowed to be a higher rate tax payer. You will be required to claim for this transfer online but, as yet, the system is not yet ready for use. Subsequently, the first 2015-16 PAYE tax codes will not include any adjustments made and you will be required to submit a claim for a revision to your tax code later in the year.

The partner to receive the tax-free additional allowance of up to £1,060 will be given a tax code letter ‘M’ as opposed to the usual ‘L’. The partner transferring the allowance, who will lose up to £1,060 of tax-free allowance, will have a tax code letter of ‘N’ rather than ‘L’.

The second major change to come this year concerns higher earners. The total amount of HMRC debt that can be included within a PAYE tax code is increasing. Professionals earning up to £30,000-a-year will not be affected, with the total amount of debt that can be recovered remaining at £3,000.

However, for every £10,000 of additional income, HMRC will be able to include a further £2,000 debt in a tax code – rising to a maximum of £17,000 for those earning more than £90,000 per annum.

In the event your tax code is adjusted to account for an outstanding tax debt, it’s important to ascertain whether the debt is correct. If repaying the debt within a single tax year could cause hardship, you may be able to renegotiate a repayment plan with HMRC.

Something else to keep in mind is that HMRC no longer informs employees if their tax code is operated on a Week 1 or Month 1 basis. Subsequently taxpayers could end up paying too much tax – especially those relatively new to a job or had previously been a student or self-employed.

Contact your employer immediately if you don’t believe you’re meant to be on a Week 1 or Month 1 tax code, as they can put you in the picture before you contact HMRC.


Image: Farouq Taj

Date published 29 Jan 2015 | Last updated 29 Jan 2015