Emergency Tax Code

A guide to the emergency tax code, why it’s used, what it means to the amount of tax you are paying and how to fix your code.

What is the emergency tax code?

An emergency tax code is used by an employer when they do not have sufficient information to put you on a standard tax code such as 1250l.

Tax codes are used by your employer to ensure that you receive the correct amount of personal allowance (or tax-free pay) that you are entitled to. For the tax year 2020/2021 that’s £12,500.

In other words, you can earn £12,500 tax-free, before you start paying income tax. If you are paid monthly you’ll be given £1,041,67 (£12,500 ÷ 12) tax-free each month your employers pays you.

 2020/20212019/2020
Personal allowance 0%£12,500£12,500
Basic rate 20%£12,501 to £50,000£12,501 to £50,000
Higher rate 40%£50,001 and £150,000£50,001 and £150,000
Additional rate 45%over £150,000over £150,000

Usually, your employer will have the tax code or sufficient information from you that they need telling them how much personal allowance you are entitled to and the tax code they should use. However there are circumstances where they are not sure what code to use, so they put you on emergency tax and this can have implications for the amount of tax you pay. It normally happens if you:

  • start a new job and not provided a P45
  • begin working for an employer after you’ve stopped self-employment
  • receive company benefits, like a company car
  • receiving the State Pension

Do you pay more tax on emergency tax code?

In some circumstances you will pay more tax, that’s because you’ll not be receiving any personal allowance. But the impact of being on an emergency tax code will depend on which one they use.

The main emergency tax codes in use are:

  • Basic Rate (BR)
  • 0T
  • D0
  • 1250 WI/MI

The basic rate emergency tax code

The tax code BR means basic rate. BR is an emergency tax code and means all your income is being taxed at the basic rate (20%) without any personal allowance being deducted.

Example

You earn a gross monthly salary of £2,500, if you were on the tax code 1250L which is the standard code for most people, you’ll receive a deduction of £1,041.67 before you start paying tax. That means you will pay income tax of £291.67 ((£2,500 – £1,041.67) x 20%).

If instead you were on the BR tax code, you wouldn’t receive any free pay meaning you will be taxed on your full gross salary. You’ll pay income tax of £500.

By being on the emergency tax code you have paid additional tax of £208.33.

Tax Code BR

The 0T emergency tax code

The tax code 0T is an emergency tax code and means all your income is being taxed without any personal allowance being deducted.

Example

You earn a gross monthly salary of £4,500, if you were on the tax code 1250L which is the standard code for most people, you’ll receive a deduction of £1,041.67 before you start paying tax. That means you will pay income tax of £758.03.

If instead, you were on the 0T tax code, you wouldn’t receive any free pay meaning you will be taxed on your full gross salary. You’ll pay income tax of £1,175.

By being on the emergency tax code you have paid additional tax of £416.97.

Tax Code 0T

The D0 emergency tax code

The tax code D0 means all your income is being taxed at 40% without any personal allowance being deducted.

Example

You earn a gross monthly salary of £4,500, if you were on the tax code 1250L which is the standard code for most people, you’ll receive a deduction of £1,041.67 before you start paying tax. That means you will pay income tax of £758.03.

If instead, you were on the D0 tax code, you wouldn’t receive any free pay and be tax at a flat rate of 40%. You’ll pay income tax of £1,800.

By being on the D0 tax code you have paid additional tax of £1,041.97.

Tax Code D0

The 1250W1/M1 emergency tax code

If you are on the W1/M1 tax code then you are receiving the personal allowance for the week or month that you work for your current employer, but you won’t be receiving any backlog of personal allowance you may be owed for example because you have not worked during the current tax year.

You don’t receive any personal allowance for previous tax years under any tax code.

Tax Code 1250

How do I fix my emergency tax code?

If you are on the wrong tax code then the first thing you should do is speak to your employer to check they have all the correct information they need. Once they have all this, they should be able to amend your tax code on your behalf in your next payslip.

Unfortunately, your employer may not be able to help you in certain circumstances because they can only act on the information sent to them in the HMRC coding notice. In these cases, you should contact HMRC on 0300 200 3300. Alternatively, you can use the HMRC online checker, by logging into your personal tax account.

Do you get emergency tax back?

You will get a refund for any tax you have overpaid once your tax code has been changed, where possible through your payslip. Your employer will update the tax code they have used for all your pay and recalculate it for you, refunding you the difference by reducing the tax you have to pay in the month they make the correction.

If your employer isn’t able to help, following the end of the tax year HMRC will calculate your earnings and tax paid. If they find you have under or overpaid, they will issue a P800 with details of how much you are owed.


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Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.