What is emergency tax?

Emergency tax is applied when HM Revenue and Customs do not have enough information about your income and tax details for a year, so they apply the emergency tax code until they have the information. It regularly happens if you start a new job, particularly if it is your first job, you do not have a P45 or have come from self-employment. It can also be applied if you start getting company benefits or begin to receive your state pension but are still working. You will generally know if you have been hit by emergency tax – as well as your pay being considerably lower than you expect, your tax code will start with an M1 or a W1.

How do I avoid paying emergency tax?

The easiest way to avoid paying emergency tax is to give your new employer your P45 as soon as you possibly can. This tells your new employer how much tax you paid in your previous job so that they can feed this back to HMRC. Inland Revenue will then send out a PAYE (pay as you earn) coding notice, which gives your new employer the correct tax code, which should be then on your next payslip.

If you don’t have a P45, which if you are entering into employment for the first time you won’t, your employer will need to complete a Starter Checklist, which used to be known as a P46. This will help your employer allocate a tax code to you, which will be fed back to HMRC.

How much will you pay in emergency tax?

How much you will pay in emergency tax is entirely dependent on how much you have earned and what your emergency tax code is. Generally, it means that you are taxed on anything over your basic personal allowance, which currently stands at £12,500. If you have the BR code, you are not getting any personal allowance taken into consideration.

Essentially, on an emergency tax you could pay up to 50% of your wages, which is the most anyone can be taxed. Of course, it will be adjusted if it is wrong and you will get it back but avoiding paying emergency tax in the first place is much easier and less stressful.

How do I stop paying emergency tax?

If you have been in your new job for more than three months and are still paying emergency tax, you can contact HMRC directly. The emergency tax code may mean that you have already paid too much tax. Any overpayment of tax will be refunded to you by HMRC as a tax rebate.