Why your PAYE code may be wrong
HMRC has upgraded its computer system to react quickly to changes in taxpayers’ pay and benefits reported through the payroll. However, the computer doesn’t know that the bonus you received in June was a one-off, and it assumes your monthly salary increased permanently.
Multiplying your bonus by 12 could take your estimated pay into a higher tax band, which will affect the rate of tax deducted from your pay. We can help you check whether your PAYE code has been amended to deduct more tax than you should be paying.
Another bug in the tax code programming affects taxpayers who receive interest. For most taxpayers, any interest they receive is covered by their savings allowance, and no tax is payable.
If the explanation of your PAYE code includes ‘untaxed interest’ set against your personal allowance, this will waste part of your personal allowance. The interest should be set against your savings allowance. If you have surplus personal allowance, which hasn’t been set against your salary, it may be more efficient to set it against dividend income from your own company, rather than interest.
You can ask HMRC to alter your PAYE code by accessing your personal tax account online at gov.uk/personal-tax-account, or we can talk to HMRC on your behalf.