The Importance of Correct Tax Codes and Self-Assessment: Avoiding Tax Troubles
Published 22nd December 2023
This article highlights the importance of correct tax codes and self-assessment in ensuring accurate tax payments and avoiding financial repercussions for taxpayers, emphasising Hammond Barr's services for checking tax codes and providing comprehensive support in tax-related matters.
Understanding Tax Codes
Tax codes are crucial in calculating Income Tax by employers and pension providers. The structure of a tax code comprises numbers and letters. The numbers indicate the tax-free income a taxpayer is entitled to for that tax year. At the same time, the letters relate to the taxpayer's situation and how it impacts their Personal Allowance.
Unfortunately, it has been estimated that more than one in three tax codes are incorrect. This can lead to either overpayment or underpayment of tax. This underscores the importance of ensuring that tax codes are accurate. If not, taxpayers may face financial repercussions. For example, employees are usually liable for any unpaid tax if there are errors in the amount of tax collected.
The Role of Self-Assessment in Tax Payments
Self-assessment tax returns play a vital role in ensuring accurate tax payments. Taxpayers might be required to complete a self-assessment tax return if they receive untaxed income, are self-employed with an annual income exceeding £1,000, or are liable to the high-income child benefit charge.
The income threshold for requiring a self-assessment tax return is £150,000. However, a tax return may still be required if specific criteria are met. For example, if the taxpayer has income from property, savings, or investments that are not taxed at source.
Importance of Checking Tax Codes
Taxpayers should always verify the accuracy of their tax codes. HMRC or the employer usually issues these codes, but ensuring they've been calculated correctly is essential. Accepting an adjustment in the tax code can have consequences, especially if the adjustment is inaccurate. It could lead to a significant over or underpayment of tax, which could have financial implications for the taxpayer.
Hammond Barr offers comprehensive support for those who need assistance in checking their tax codes and making necessary adjustments. Their team of AAT-qualified technicians can provide expert guidance to ensure the accuracy of tax codes.
Risks of Not Completing a Self-Assessment Return
For taxpayers not required to complete a self-assessment tax return, it's essential to keep a close eye on changes to tax codes and notify HMRC promptly if tax is owed for the previous tax year. Small underpayments or tax overpayments could persist for years if a self-assessment return is not completed. This could lead to a significant tax liability or refund over time, which could have financial implications for the taxpayer.
The accuracy of tax codes and the completion of self-assessment returns are paramount in ensuring fair tax payments. Taxpayers are encouraged to seek professional assistance, particularly from Hammond Barr, who offers a complete range of accountancy services.
These include tax planning, bookkeeping, payroll, and VAT returns. Explore Hammond Barr's accountancy services today for comprehensive support in tax-related matters.
We strive to take care of your finances so that you can focus on the business and utilise your time more effectively.
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