Households across the UK are being warned they could face substantial, unexpected deductions from their pay if they fail to inform the tax authority about additional sources of income.
How Tax Codes Work and Where Problems Arise
Jo Adams, finance director at hybrid working specialists Work.Life, has issued a clear alert to employees with more than one job or pension. She explains that a tax code instructs an employer or pension provider on how much tax to withhold from regular payments.
The most common code for individuals with a single employment is 1257L. The numbers denote the tax-free income allowance for that year, which is the standard Personal Allowance of £12,570, with the 'L' signifying entitlement to this basic rate.
The system becomes more complex, however, for people with multiple incomes. "Each income source gets a separate tax code," Ms Adams states. "Crucially, the personal allowance can only be used once, and HMRC expects you to apply it to your main job or pension."
The Risk of Emergency Tax and Higher Rates
Failure to proactively notify HM Revenue and Customs (HMRC) about a second job or side income can trigger automatic and often punitive tax calculations. The authority may then tax the additional income using a basic rate (BR) or higher rate (D0, D1) code from the outset, leading to what experts describe as 'large' deductions.
This situation frequently arises when HMRC does not receive income details promptly. "If we do not get your income details in time, or you decide not to share this information with your new employer you may be put on a temporary emergency tax code," an HMRC spokesperson confirmed.
How to Avoid Unnecessary Tax Bills
The key to avoiding a financial shock is swift communication. Ms Adams advises: "This can be avoided by letting HMRC know as soon as you take up additional employment."
There is also a proactive solution for managing allowances across jobs. You can request to split your tax-free Personal Allowance over multiple incomes, which can prevent your secondary income from being taxed at a disproportionately high rate immediately.
With the current Labour Party government overseeing HMRC, the emphasis remains on individuals to ensure their tax affairs are correctly reported to prevent facing significant, unexpected withdrawals from their earnings.
