Understanding your tax code is essential if you want to make sure that your tax payments are accurate. This is the reason why we will be discussing the meaning of the tax code 550L in the following article so that readers can benefit from learning about how and when this tax code is applied. If you are one of those who were assigned a 550L tax code, you can also learn about how this tax code can affect your Personal Allowance and income tax dedication as well as what to do in case you’ve been assigned an incorrect tax code.
What Is The Meaning Of Tax Code 550L?
If your tax code is 550L, it means that your Personal Allowance is set at £5,500. This amount of Personal Allowance will be applied to your annual income before income tax is applied to the remainder of your earnings.
The 550L tax code is a cumulative tax code. This means that the tax code has been applied at a uniform rate on your income for the entire tax term.
If your Personal Allowance is less than the amount set for the tax term in a given year, it means that you have underpaid your taxes in previous years due to which your Personal Allowance is less than others.
For instance, the current Personal Allowance for PAYE taxpayers is £12,570. This means that this non-taxable amount is deducted from annual earnings before income tax is applied at the required rate on the remaining income.
However, if your tax code is 550L, it means that you are being assigned a lower Personal Allowance than the rest of the PAYE taxpayers. The most common reason for this may be that you have underpaid taxes from previous years or you were assigned an incorrect tax code earlier due to which you need to compensate for missing amounts now.
Another reason for having a tax code with a lower Personal Allowance could be because you have been provided taxable benefits such as a company car or private medical insurance from your employer. If this is the case, your Personal Allowance will be reduced after taking into consideration the monetary value of such fringe benefits and deducting their annual worth from your Personal Allowance before applying an income tax rate to your earnings.
On the other hand, if you believe that you have been assigned the 550L tax code in error, you should inform your employer or the HMRC to get it corrected at the earliest possible.
To confirm whether you are assigned the correct tax code, you can check the following documents:
- P45 form
- PAYE coding notice
- Pension advice slip
- HMRC website
If you are still not sure, you can contact the HMRC at 0300 200 3300 and ask them to look into the matter.
Have I Been Assigned The 550L Tax Code Due To Company Benefits?
Yes, you could be assigned the 550L tax code if you receive taxable company benefits from your employer. These include the following:
- Company vehicle
- Living accommodation
- Low-interest or interest-free loans
- Medical insurance
Your employer will simply apply a monetary value to the benefits you enjoy. This amount will then be deducted from your Personal Allowance; thus reducing the non-taxable amount of your income. Depending on the income tax rate that applies to you, the remainder of your earnings will be taxed either at 20%, 40% or 45%.
On the other side, company benefits that are non-taxable and that cannot affect your tax code include the following:
- meals in a staff canteen
- hot drinks and water
- a mobile phone
- workplace parking
- childcare costs taken care of by your employer
How Can I Find Out If I Am Assigned The Correct Tax Code?
If you are unsure about your tax code you can check the letter sent to you by HMRC before the start of the new tax term. A tax notification letter is a notice from the HMRC to inform taxpayers of the tax code that is being assigned to them.
When you receive the tax notification letter, you must make sure that the tax code assigned to you corresponds to your payslip as well as your current circumstances. You must also check whether all allowances, incomes, pensions, restrictions and adjustments are mentioned correctly. If you find an error in your tax notification letter, you must inform your employer or HMRC.
Alternatively, you can also check your tax code using HMRC’s online tax code checker tool.
For a basic understanding of tax codes, you should keep in mind that they are a combination of letters and numbers that determine the amount of income tax due on your income. While the letters indicate your financial position and how it relates to your personal allowance, the numbers tell your employer or pension provider the amount of tax-free income that you are eligible for in that tax year.
Can I Get A Tax Refund If I Have Overpaid Taxes Due To An Incorrect Tax Code?
Yes, you can claim a tax refund using the P60 form if you have overpaid taxes due to an incorrect tax code. In this case, claimants will need to share the following details with HMRC:
- their earnings in total
- the amount of income tax that they have paid
- the amount of income tax that they have paid in excess
To reclaim overpaid taxes while withdrawing funds from their pension, you can use the P55 introduced by HM Revenue and Customs for the tax year 2021-22.
This form is only to be used if claimants:
- do not have a P45
- are not employed to work
- are not claiming benefits
You can claim a tax refund for overpaid taxes as far back as four years. This means that an overpaid tax in 2022 can be claimed until 2026.
The above discussion has helped to conclude that the 550L tax code implies a reduced Personal Allowance for its recipients. This can be due to an adjustment in the tax payments for previously underpaid amounts or to accommodate taxable company benefits that they have received from their employer.