Tax Codes
taxes in 1797 (Triple Taxation) prompted the introduction of a temporary Incomes Tax. The bill was made Law on 9th January 1799 and repealed in May 1802.
In 1842 Robert Peel reintroduced the principle, and notwithstanding plans for its abolition by William Gladstone in 1874, it has continued as a temporary tax thereafter. Even today failure to approve the annual Finance Bill by the 1st August in any year would indeed see the demise of Income Tax. Such a measure would no doubt itself prove ‘temporary!’ On its introduction in 1799, incomes below £60 per year were exempt, for those between £60 and £200 a graduated scale from 1/20 to 1/10 applied, and on incomes above £200 the rate was 1/10 (10%). TAX CODES The tax code is a means of amending the annual amount of tax-free pay (earnings which an employee may receive before Income Tax becomes due and deductible). In addition to the code, a prefix or suffix letter will be linked to that code. In certain cases letters may take the place of a code. The annual personal allowance is directly related to the code. The tax code denotes the annual value of the personal allowances/adjustment by omitting the unit element, e.g. Annual allowance £12,570, code = 1257. By reversing the process, the value of the annual personal allowance may be determined (within minimal limits) by multiplying the code by a factor of 10 and adding 9 e.g. code 1257 personal allowance value for payroll purposes = £12,579 (1257 × 10 + 9). This convention will only apply within payroll. Individuals are notified of their code via a form P2. Taxpayers who think their code is wrong should inform HMRC by email at https://www. gov.uk/tax-codes . Scottish taxpayers have a “S” prefix code. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS TAX CODE PREFIX AND SUFFIX LETTERS The suffix letter is used annually - if required - as a means of adjusting employees’ codes en- bloc when the Government increases, or decreases, the value of annual personal allowances. Form P9X, issued annually by HMRC, advises employers of the changes to be actioned. Where a code must be individually assessed by HMRC (T prefix codes) a P9 is issued before the start of the relevant tax year. If further changes are made as a result of a late Budget, to take effect normally in tax week 7 or 11 depending upon the date of the Budget, a P7X form is issued which acts as the authority to amend codes en-masse and further P6(B) forms are issued where individual codes need to be amended.
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Most PAYE schemes now download all coding notices as part of the payroll process and this has become more prevalent since the implementation of RTI in April 2013.
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