Understand how the 0T tax code works, how it affects the tax rate you’re paying and how 0T tax refunds work.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
What Does the 0T Tax Code Mean?
The tax code 0T is an emergency tax code. It means all your income is being taxed without any personal allowance being deducted.
For the 2022-23 tax year, the personal allowance is £12,570. It means that if you are paid monthly, for example, on the standard tax code the first £1,047.50 (£12,570 ÷ 12) of your income is tax-free and you’ll start to pay tax on everything over this amount, depending on the tax bands your income falls into.
If you are on the 0T W1/M1 tax code you’ll start paying tax at 20% on your income, with no tax-free amount deducted.
Example of the 0T W1/M1 Tax Code
You earn a gross monthly salary of £4,500 and you have been put on the 0T tax code for the 2022-23 tax year. You won’t receive any personal allowance when you are paid, so you’ll pay income tax of £1,171.37.
If you were taken off emergency tax and put on a standard tax code, you’d pay income tax of £752.37 instead. A tax saving of £419.
Why Are You On the OT Tax Code?
Unless your employer is totally sure they should be giving you the personal allowance, they will put you on 0T emergency tax instead. The reason they do this is to stop you from benefitting twice, paying too little tax and then getting hit with a big tax bill at a later date. Although the 0T tax code is usually temporary, there are a few reasons you may have one;
- The first reason is that your employer does not have details about your previous employment. This would normally be on a P45 or starter checklist (previously known as a P46).
- The next possible reason is that you have a second job or a pension. This would mean you are using your personal allowance is being used up somewhere else
- The final reason is that you are going from self-employed to PAYE employment. Therefore, you are claiming your personal allowance on your tax return or through your salary from your Limited Company, if you have one.
What to Do If You Don’t Think You Should Be on the 0T Tax Code
If you think you have been given the wrong tax code, then first speak to your employer. You should check they have all the right paperwork they need from you to put you on the right tax code. Once they have confirmed they have everything then check with them that your 0T tax code will be changed on your next payslip and that you’ll be getting a tax refund.
If not, and there is a problem with your tax code, then contact HMRC by phone on 0300 200 3300. Alternatively, you can use their income tax service online by logging into (or setting up) your personal tax account to notify them that you believe you are on the wrong tax code.
What is the Difference Between 0T and BR Tax Codes?
The OT and BR tax codes both give you no personal allowance (tax-free pay). The BR tax code only taxes your salary at the basic rate. Whereas the OT tax code taxes you at the basic (20%), higher (40%) and additional tax rate bracket (45%) as income increases.
If you only pay tax at the basic rate, there is no difference between the OT and BR tax codes.
What Happens if You Haven’t Paid The Right Tax
Once the tax year ends, HMRC check that you have paid enough tax based on the records they hold on your income for previous tax year.
If you are owed a repayment or owe tax of up to £3,000, they will send you a P800 letter with details of what has happened. If you owe more than £3,000 they will issue you with a simple assessment