A person’s tax code is used by their employer or pension provider to work out how much to take from their pay or pension.
There are various codes depending on how much a person earns and their situation, which will be included on a person’s payslip.
It is worth checking if the code is correct as HMRC may change it for a number of reasons.
For example, a worker may be switched to an emergency tax code if they change jobs.
This means they will pay tax on all their income above the Personal Allowance, of £12,570.
A taxpayer may also be switched to the emergency code if they begin working for an employer after being self-employed or if they get company benefits or the state pension.
This will be displayed on the payslip as 1257 W1, 1257 M1 or 1257 X.
HMRC should update the tax code when the employer contacts them with the correct details.
If a person has not paid the right amount of tax in that year, they will stay on the emergency code until the correct amount has been paid.
A person’s tax code may also change if they start to get income from an extra job or a pension, or if they start or stop getting benefits from their job.
If the tax code is wrong, a worker can update their employment details online as well.
Taxpayers can also notify HMRC of any changes in income that may have affected their tax code online.
If HMRC updates a person’s tax code and they have paid too much or too little tax, the group will send out a P800 or Simple Assessment tax calculation.
This enables the individual to get a refund or pay what they owe.
If there is a tax refund for the previous year, this will usually be sent out as a cheque in the post.
People are also sometimes paid back via a tax code adjustment, which sees them pay less tax and essentially receive more of their wages.
Consumer group Which? suggested that Britons check their tax code each year or after changing jobs to ensure it is correct.
Which? money expert, Reena Sewraz, said: “Many people are feeling financial pressure at the moment as soaring energy and food prices, as well as tax hikes, have put a huge strain on household budgets.
“However, there are steps you can take to save money on tax.
“It is always worth doing a quick check to make sure you’re on the right tax code – if this is incorrect you could be eligible for reduced tax or a refund from HMRC.”