What is a 0T 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.
Everyone in the UK is entitled to earn an amount tax-free every tax year, for 2021/2022 this is £12,570 (up from £12,500 in 2020/2021). If you are paid monthly you’ll receive free pay of £1,047.50 (£12,570 ÷ 12) each month, which everything above this being taxed according to how much you earn.
|Personal allowance 0%||£12,570||£12,500|
|Basic rate 20%||£12,570 to £50,270||£12,501 to £50,000|
|Higher rate 40%||£50,271 to £150,000||£50,001 to £150,000|
|Additional rate 45%||over £150,000||over £150,000|
You earn a gross monthly salary of £4,500, if you were on the tax code 1257L (previously 1250L for the 2020/2021 tax year) which is the standard code for most people, you’ll receive a deduction of £1,047.50 before you start paying income tax. That means you will pay tax of £690.50.
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 £962.16.
By being on the emergency tax code you have paid additional tax of £271.66
Why Would You Be Given An Emergency 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 next possible reason is that you have a second job or a pension, meaning 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 so 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 firstly speak to your employer and check they have all the right paperwork they need from you.
If they have, then check with them that your 0T tax code will be changed on your next payslip and you’ll be getting a tax rebate.
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 rates (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 Enough Tax
If HMRC discovers, for whatever reason, that you have underpaid your tax during the year, they will recalculate your tax and issue you with a simple assessment if you owe less than £3,000 or send you a letter if you owe more than £3,000.
Updated 25 October 2021