What Is The Meaning Of The 0T Cumulative Tax Code?
By
HuutiMoney
If you are wondering what is the meaning of the 0T Cumulative tax code, you will find the answer to your question in the following blog post. In addition to this, we will also explain the reasons why the 0T Cumulative tax code could be assigned to you and what are the potential consequences to expect.
What Is The Meaning Of The 0T Cumulative Tax Code?
The meaning of the 0T Cumulative Tax Code is divided into two parts. Following is an explanation of each part separately:
- The first part of the tax code is 0T which indicates that there is no tax-free allowance for the taxpayer. In usual cases, a tax-free allowance; which is termed a Personal Allowance, is first deducted from your earnings and the remaining amount is subject to taxation. This amounts to £12,570 for the 2022/23 tax term. However, with a 0T tax code, there is no such allowance which makes your entire earnings or the sum of your earnings (in the case of multiple sources of income) subject to taxation.
- The second part of the tax code is “Cumulative”. This means that HMRC is taking your earnings for the entire tax term into account. In most cases, the 0T tax code is applied as an emergency tax code with the M1 or W1 extensions. This means that the tax code is only applicable for the period in question; which can either be a week if you are paid a weekly wage or a month if you are paid a monthly salary. However the addition of the term cumulative makes the tax code 0T applicable to your earnings throughout the entire tax term.
Why Is The 0T Cumulative Tax Code Assigned?
There are many reasons why you could be assigned the 0T tax code. These include the following:
- you have started a new job and have not given your new employer your P45 from your previous job
- you haven’t filled out the P46 form
- you have consumed all your tax-free personal allowance (this happens in the case of holding two jobs)
- you have additional income from another job or a pension
- you’ve been awarded certain company benefits
- you are shifting from self-employed status to a PAYE employee and you are using your Personal Allowance for your self-assessment tax returns
- your earnings are more than £125,140; leaving you with no Personal Allowance
How Much Do You Pay In Taxes With The 0T Cumulative Tax Code?
The tax amount that you pay with the 0T Cumulative tax code will depend on how much you earn. This is classified on the basis of earnings and tax rates as follows:
- 20% income tax when income is up to £12,570
- 20% income tax when income is between £12,571 and £50,270
- 40% income tax when income is between £50,271 and £150,000
- 45% income tax when income is above £150,001
What Are The Consequences Of The 0T Cumulative Tax Code?
The consequences of an 0T cumulative tax code are:
- you have no tax-free Personal Allowance and your entire earnings will be taxed
- if you have only one job and you’re assigned this code, it could lead to overpaying taxes
However, unlike the other emergency tax codes BR, D0 and D1, your earnings are not taxed at a flat rate with the 0T tax code. This means that you will be taxed at a rate of 20%, 40% or 45%; according to the amount of earnings you have.
If you believe that you’ve been issued the 0T cumulative tax code in error, you should contact HMRC by calling them on 0300 200 3300 and seek their support in having your tax code corrected.
In case of overpaid taxes, you can claim a tax rebate from the HMRC, whether it concerns an ongoing tax term or any time in the past 4 years.
Conclusion:
The above discussion provides a detailed overview of the meaning of the 0T Cumulative tax code which simply indicates that the recipient has no tax-free Personal Allowance and their entire earnings must be taxed for the entire tax term. The tax rate, however, will depend on your earnings and will increase with an increase in them as well.
References:
What is a 0T Tax Code? – Brian Alfred