Money Matters: How much tax you'll pay this year and why you should check your tax code

When was the last time you checked your tax code? If the answer is never, you’re not alone – but it could be costing you money.

Your tax code tells your employer how much tax to take from your wages. If it’s wrong, you might be paying too much or too little. Either way, it’s worth a quick check to make sure your pay is right.

Most people who have one job or pension will have a tax code starting with ‘1257L’ – this means you can earn up to £12,570 a year before paying income tax. This is called your personal allowance.

If your code looks different, don’t panic – but do investigate. Sometimes changes happen if you’ve had more than one job, received benefits like a company car, or claimed certain tax reliefs.

If you think your tax code is wrong, the start of the new financial year is a good time to get things sorted to ensure you’re paying the right amount of tax for the year ahead.

You can check your tax code on your payslips (if you’re employed), or by logging into your Personal Tax Account on the HMRC website.

Employees will also soon receive a P60 for the 2024/25 tax year which has just ended, showing the total amount of tax paid. If you’ve underpaid or overpaid, you’ll receive a letter with information on how this will be rectified.

The basic rate of income tax is 20% on anything you earn over that £12,570 personal allowance. If you earn more than £50,270 you’ll be paying 40% tax on any earnings over that amount – after things like pension and student loan repayments are deducted.

Things get a bit more complicated for even higher earners, as you start to lose your personal allowance if you take home over £100,000, and at just over £125,000 the 45% tax rate kicks in.

The tax thresholds have all been frozen for several years and will remain at the current levels until 2028, meaning more and more lower earners are going to end up paying tax as wages rise each year. Meanwhile those earning just a little over the average of £37,500 (according to the Office for National Statistics) are inching closer to hitting that 40% rate.

One allowance many people miss is the Marriage Tax Allowance. If you’re married or in a civil partnership, and one of you earns less than the personal allowance – for example if you’re a stay-at-home parent or working part time – while the other is a basic rate taxpayer, you could transfer part of your allowance and reduce your tax bill by up to £252 a year. It’s quick to apply online and can even be backdated for four years.

Finally, just a quick mention of National Insurance – which is separate but essentially another tax. You pay nothing on earnings up to £242 a week, and 8% of anything above that, up to £967 a week. Those who earn above that higher figure will pay 2% on any extra.

You can find out more information on the Government website, or you can speak to organisations like Citizens Advice if you need help understanding what you’re paying. Wrekin Housing Group customers can also contact our Money Matters team.