3 min Read
11 May 2012

Written by Damien

Damien is one of the most widely quoted money and investment experts in the national press and has made numerous radio & TV appearances. He created MoneytotheMasses.com while working in the City when he became disillusioned with the way the public were left to fend for themselves because they could not afford financial advice.

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Reader Question: Why has my tax code changed?

Get an answer to your financial question online Reader Question:

I am 65 and have a tax code of 486P, my husband is 71 and has a tax code of 323P this does not sound right. Could you please help us understand this or maybe his is wrong?

He is paying more tax than last year, but income is no higher.

Thanks for your help


 My response:

Here is a brief explanation as to how HMRC calculate your tax code:

You are entitled to the full age-related Personal Allowance if you are aged over 65 and your total income before allowances is less than £25,400.

Assuming an entitlement to a full age-related Personal Allowance the amount you can receive tax-free in the tax year is £10,500.

HMRC then subtracts your State Pension (this is the taxable income that you are in fact receiving without tax taken off - to take account of this it's taken from your tax-free Personal Allowance) which leaves you with a balance of Personal Allowance. So assuming a full State Pension of £5,577, this would leave you with £4,923 (i.e the remaining amount of income you can receive without paying tax)

HMRC then take this figure to create your tax code 492P. Where P indicates entitlement to the full age-related Personal Allowance for the age 65-74 and 492 is the amount of the allowance left with the last number removed.

Obviously the figure 492 can change depending on your circumstances, such as other income you have not paid tax on. So unfortunately I can not say for certain why your tax codes are as they are.

Given that there it is estimated that up to 3/4 of pensioners are on the wrong tax code I suggest you contact HMRC as soon as possible and ask them to explain your tax coding in more detail.

I hope that helps

Best Wishes



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