Why Is My Tax Code 747L?
Tax codes are an indicator of the amount of tax deduction one can expect from their annual income. This blog post aims to answer the question of why some individuals may have a tax code of 747L. For a deeper perspective, we will discuss the application as well as the implication of this tax code. We will also quickly review some general questions regarding tax codes, how they are calculated and applied to incomes as well as the consequences of not paying your income tax.
Why Is My Tax Code 747L?
If your tax code is 747L, it means that you can earn £7,475 in a year before tax is deducted by your employer under a PAYE system.
747L was the most common tax code during the 2011-2012 tax term. The reason for this is that the Personal Allowance during that year was set at £7,475.
A tax code is a combination of numbers with a letter at the end which indicates the amount of tax to be deducted from your income. The letter “L” at the end of your tax code indicates that you are entitled to a tax-free personal allowance.
The 747L tax code is a cumulative one. This means that your annual income tax has been calculated based on your year-to-date tax payments. A cumulative tax code takes into account your tax payments made during a tax year while keeping an account of the amount of tax-free allowance that you have used during the same time. According to this, any unused personal allowance can be passed on to future weeks.
If you are unsure of the reason why your tax code is made of certain numbers, you can ask your employer. If you are certain that you’ve been assigned a tax code in error, you should inform the HMRC. You can do this by calling them on 0300 200 3300 or using your personal tax account to inform them online.
You will find your tax code mentioned in the following documents:
- P45 form
- PAYE coding notice
- Pension advice slip
- HMRC website
The same tax code must be mentioned in all the documents. If it has not been updated in any of them, you may have been paying an incorrect amount of tax and should inform your employer and the HMRC.
Does Tax Code 747L Apply In The Case Of A Second Job?
No, the 747L tax code does not apply to your second job if it already applies to your main job. Generally speaking, second jobs are usually assigned a BR (Basic Rate) tax code which indicates that there is a 20 per cent tax due on your income.
Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance since it has already been accounted for. The reason is that the HMRC divides your total income by sources to calculate the amount of tax that is due on your cumulative income.
If your second job involves you in a self-employed position, you will have to pay your tax and National Insurance contributions by filing a self-assessment tax return on the 31st of January every year.
How Are Tax Rates Applied To Incomes?
Tax rates are applied based on your income brackets at a progressive rate. This means that as incomes increase, so does the percentage of the applicable tax rate. However, the Personal Allowance amount set for the year is first deducted from the annual income before the income tax rate is applied. Below are details of these bands:
- If your income is up to £12,570 your income tax will be 0%
- If your income is between £12,571 and £50,270 your income tax will be 20%
- If your income is between £50,271 and £150,000 your income tax will be 40%
- If your income is above £150,001 your income tax will be 45%
If you are self-employed, you are required to file a self-employed tax return to pay your taxes through a self-assessment.
How Are Tax Codes Assigned?
The following steps are followed by the authorities while assigning tax codes:
- Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
- Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
- Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.
What Happens If You Have Unpaid Tax?
If you have not paid your taxes you can be charged with tax evasion. This means that you can face penalties ranging from a fine of £5,000 and six months in jail to seven years in prison and unlimited fines.
Penalties charged by the HMRC for tax evasion include the following:
- If someone is found guilty of income tax evasion, their summary conviction is 6 months in jail or a fine of up to £5,000. The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine.
- If someone is found to be guilty of VAT Evasion of VAT, the maximum sentence is 6 months in jail or a fine of up to £20,000. In the case of a Crown Court, the penalty can be a maximum of seven years in prison or an unlimited fine.
- If the case is about cheating the public revenue, the penalty is life in prison or an unlimited fine.
- If someone is caught providing false documentation to HMRC, they may have to pay a fine of up to £20,000 or face up to 6 months in prison.
The above discussion helps to conclude that the tax code 747L applies to cases in which the Personal Allowance amount is set at £7,475 before an income tax rate can be applied for deductions.
Five ways to avoid overpaying your tax | Tax | The Guardian.
If my PAYE tax code is 647L, is it true that it should be 747L? – Accotax