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A Guide About What is BR Tax Code and How Does it Impacts Your Tax Bill
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It is important to understand the tax code. The major reason it is essential is to make sure that neither are you overpaying nor underpaying on your PAYE taxes.
It is important to note that there are many tax codes that HMRC assigns, however, the BR tax code often creates confusion due to its specific implications. MMBA Accountants, through its expert guidance and help, have assisted many people navigate the complex concepts.
Thus, in this guide, we’ll explain what the BR tax code means, how tax codes work, and the impact it can have on your tax bill.
Table of Contents
What is a Tax Code?
A tax code defines how much PAYE (Pay As You Earn) tax your employer or pension provider should deduct from your salary or pension during each pay period. HMRC calculates your tax code based on your income and personal circumstances.
If your circumstances change, such as starting a new job or receiving additional income, HMRC may adjust your tax code to reflect your updated tax-free allowance and taxable income.
Do Self-Employed Individuals Receive a Tax Code?
Self-employed individuals don’t receive a tax code. Instead, they are assigned a UTR (Unique Taxpayer Reference) and are responsible for submitting a Self-Assessment Tax Return.
The tax owed is calculated at the end of each fiscal year based on their taxable income. Unlike employed individuals, self-employed people don’t pay tax via PAYE, making the tax code system irrelevant to them.
You can also get help for simple self assessment tax scheme to know more about this.
What Does the BR Tax Code Mean?
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The BR tax code, often referred to as an “emergency code,” indicates that all your income from this job or pension will be taxed at the basic rate of 20%. It does not include any tax-free personal allowance.
This tax code is typically assigned in the following scenarios:
- You have more than one job or pension. Your personal allowance is applied to your main job, leaving other sources of income, such as a second job or additional pension, fully taxable at the basic rate.
- Your new employer hasn’t received sufficient information. Employers might use the BR tax code temporarily while waiting for HMRC to provide the correct tax code.
- Circumstances change. If you haven’t informed HMRC about changes in your income or employment, you might be assigned the BR tax code until further calculations are made.
Example: If you earn £25,000 annually from your main job and an additional £10,000 from a second job, the income from your second job would typically be taxed at the basic rate under the BR code.
Where Can You Find Your Tax Code?
You can find your tax code in several places:
- On your payslip.
- In letters from HMRC.
- Online via your HMRC account.
- On the HMRC mobile app.
If you’re uncertain about your tax code, contact HMRC to make sure that you’re paying the correct tax.
How are Tax Codes Structured?
Tax codes consist of letters and numbers. The numbers generally represent your tax-free personal allowance, while the letters explain special circumstances:
- BR Code: All income is taxed at the basic rate (20%).
- L Code: You receive the standard tax-free personal allowance.
- K Code: You owe tax on untaxed income or taxable benefits exceeding your personal allowance.
- M/N Code: Reflects adjustments for the transfer of personal allowance between spouses or civil partners.
- 0T Code: No personal allowance applied.
Understanding Emergency Tax Codes
Emergency codes are temporary tax codes used when HMRC lacks sufficient information about your income. These include:
- BR Code: All income taxed at the basic rate.
- W1/M1 Codes: Weekly or monthly income taxed without accounting for cumulative income.
If you’re assigned an emergency tax code, contact HMRC immediately to avoid overpaying tax.
Common Tax Code Scenarios
Common tax code scenarios include:
New Job
When starting a new job, your employer may temporarily assign a BR tax code while waiting for your official tax code from HMRC.
Receiving Additional Income
Additional income from a second job, state pension, or company benefits (e.g., a company car) might push you into a different tax code like BR or K.
Impact of the BR Tax Code
The BR tax code can lead to paying too much income tax if applied incorrectly. For example:
- You start a new job: If your new employer applies the BR code, you’ll pay tax on all income without a personal allowance.
- Incorrect Code: If HMRC hasn’t updated your circumstances, you might pay the wrong amount of tax.
Always verify your tax code to make sure that it reflects your situation accurately. If you’ve overpaid, you can claim a tax refund from HMRC.
Other Tax Codes You Should Know
There are certain other tax codes that you should know:
- K Tax Code: Indicates untaxed income or taxable benefits exceeding your personal allowance.
- SBR: Scotland’s version of the BR tax code, reflecting Scottish tax rates.
- T Tax Code: Used when allowances are split between income sources, and HMRC needs more data.
How to Resolve Issues with the BR Tax Code
If you’re assigned the BR tax code but believe it’s incorrect, take the following steps:
- Contact HMRC: Provide them with details about your income and employment.
- Update Your Employer: Make sure that your employer has accurate information about your main job and additional income.
- Review Your Tax Bill: Compare your expected tax-free allowance and taxable income against your actual tax payments.
When Circumstances Change
Life events such as starting a new job, switching employers, or receiving state benefits can affect your tax code. Always update HMRC promptly to avoid being assigned the wrong tax code. Keep a keen eye on the important UK tax dates and deadlines to avoid penalties.
All You Need to Know About BR Tax Code
Here’s all that you must know about BR tax code:
- What is BR Tax Code: Indicates all income taxed at the basic rate (20%) without personal allowance.
- Why It’s Used: Applied to second jobs, pensions, or when insufficient information is available.
- Impact: May result in overpaying tax if applied incorrectly.
- How to Fix: Contact HMRC and update your employer with accurate information.
Conclusion
It is important to make sure that you have the correct tax code is vital to avoid overpaying or underpaying income tax. Understanding the BR tax code and other tax codes helps you manage your tax bill effectively and avoid surprises at the end of the tax year.
Always check your tax code and seek professional advice if you suspect any errors. Before moving ahead, read this detailed guide thoroughly to avoid any ambiguities pertaining to BR tax code. Also, take help from MMBA Accountants expert team to navigate the complex taxation arena easily.
Multiple Jobs or Pensions
If you have more than one job or pension, your main job usually receives your full personal allowance, while your secondary income is taxed at the basic rate under the BR code.
FAQs
What does the BR tax code mean, and when is it used?
The BR tax code stands for “Basic Rate,” meaning you are taxed at a flat rate of 20% on all your income without any personal allowance. It is commonly applied when you have two jobs, your employer hasn’t received your correct tax code from HMRC, or you’ve started a new job. Unlike a cumulative tax code, the BR tax code doesn’t account for any allowances, previous year’s earnings, or other calculations.
Why am I on a BR tax code, and could I be paying too much tax?
You might be on a BR tax code if:
- You have multiple jobs or pensions, and this is not your main source of income.
- HMRC has yet to provide your employer with an updated tax code.
- Your employer doesn’t know your correct code when you start.
In some cases, being on a BR tax code may result in paying too much tax, especially if your partner’s personal allowance hasn’t been accounted for or your first job is taxed at the BR rate. You should check if your BR tax code is appropriate or request a correction from HMRC.
How do I know if my BR tax code is correct for my situation?
The general rule is that the BR tax code should only apply to secondary income, such as a second job or pension, where your personal allowance has already been applied to your primary income. If you’re paid weekly or monthly, and you notice discrepancies or believe you’re on the wrong code, contact HMRC. They can review your circumstances and ensure your code reflects factors such as cumulative tax code calculations, additional rate taxpayers, and allowances carried over from the previous year.
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