Britons have been urged to check their tax code is correct as a common occurrence could result in an extra HMRC bill for thousands of pounds.
Experts at wealth firm Killik & Co have urged people to check their code as they could be dragged into an effective 60% tax bracket.
The group warned that you may unknowingly find yourself in this situation if you receive a bonus as part of your job.
Sarah Hollowell, Head of Tax and Trustee Services, explained: « Under the current code system, an employee’s pay for the whole tax year is estimated from the information supplied each month.
« This means that if someone receives a bonus, and therefore has an unusually high salary for one month, HMRC’s systems will take this to be 1/12th of their annual salary and may re-issue a tax code on the assumption that their pay has increased.
Ms Hollowell went on to explain how this could drag you into paying a huge 60% tax. She said: « if your total salary for one month implies you annually earn £100,000 or over, you could end up paying an effective tax rate of 60 percent tax on your earnings.
« This is because once an individual earns over £100,000, their annual allowance begins to fall due to the ‘personal allowance taper’.
« Essentially, for every £2 you earn over £100,000, your personal allowance is reduced by £1, meaning that once you earn £125,140 or more, your allowance disappears entirely.
« As a result, a bonus one month could skew HMRC’s view of what your annual salary is, and cause them to issue an incorrect tax code.
« If you think this may affect you, it’s important to check any new tax codes received and flag any errors to HMRC to avoid paying too much tax. »
The standard personal allowance entitles a person to earn up to £12,570 a year without paying income tax. You then pay 20 percent on income between £12,571 and £50,270, and 40 percent on income between £50,271 to £125,140.
Once your income exceeds £125,140, your pay 45 percent tax on your income and your personal allowance is entirely removed.
You can find your tax code on your payslip, on a P45 or on a P60, as well as on a pension advice slip. The most common tax code is 1257L, meaning you get the full tax-free personal allowance.
Ms Hollowell encouraged workers to regularly check their payslip to make sure their code is correct. She urged: « Make it a habit to confirm that the correct amount of tax is being deducted, and be sure to contact HMRC if you spot any discrepancies. »
