Getting your first payslip is exciting, but the ‘emergency tax’ deduction makes you stunned. However, it is not permanent and can be solved by taking the right measures. If you’ve ever wondered, “How much emergency tax will I pay?” you’re not alone. Many people don’t fully understand what an emergency tax is. This guide will explain everything you need to know, including:
- What Emergency Tax is and why it happens
- How much is emergency tax
- How to spot if you’re being emergency taxed
- How to reclaim any overpaid tax, and
- A lot more…
Let’s get started!
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What Is Emergency Tax?
Emergency tax is a temporary tax that can be applied to your income if your tax code isn’t up-to-date or if HMRC doesn’t have enough information about your income. It’s called “emergency” because it’s usually applied in situations where the normal tax codes can’t be used.
While it’s meant to ensure that you pay some tax until the correct tax code is applied, it can sometimes be higher than what you should actually pay.
How Does Emergency Tax Work?
When you start a new job or change jobs, your employer needs to know your tax code. This tells them how much tax-free income you’re allowed to earn before you have to start paying tax. If they don’t have this information, they will use a default tax code. This is where emergency tax comes in.
Why Am I Being Charged an Emergency Tax?
There are a few common reasons why an emergency tax might be applied:
- Starting a New Job: If you’re starting a new job and HMRC hasn’t given your new employer your tax details yet, you could be placed on emergency tax.
- Not Having a Tax Code: If HMRC doesn’t know your income or if they don’t have up-to-date information about you, you’ll be placed on emergency tax until they can sort things out.
- Multiple Jobs: If you have more than one job and your employers don’t know about each other, they might apply emergency tax because they can’t tell how much you’re earning from each job.
- Not Giving Correct Details: If you don’t provide your employer with your correct tax code or personal details, they might use emergency tax.
How Much Is Emergency Tax?
So, what rate is the emergency tax? The emergency tax rate in the UK depends on several factors, such as whether you’re a basic rate taxpayer, a higher rate taxpayer, or if you have other specific circumstances like multiple jobs.
Let’s break it down.
The Basics of Emergency Tax Rates
When you’re placed on emergency tax, your employer uses a default tax code this is often the emergency tax code, which is higher than your usual code. In most cases, this means you’ll be taxed at the basic rate of 20%, but the actual rate could be higher depending on a few different circumstances.
For example:
- If your tax code is incorrect or if you haven’t provided all the necessary information, your employer might apply a higher rate.
- If you’re a higher-rate taxpayer, your emergency tax could be deducted at 40% or 45%, depending on your earnings.
Common Emergency Tax Scenarios
Let’s look at some common scenarios to better understand how much emergency tax you might end up paying.
Example 1: Starting a New Job Without a P45
Imagine you’ve just started a new job, but you’ve either forgotten to give your new employer your P45 or you didn’t have it from your previous job. Your employer doesn’t have your full tax details, so they’ll apply an emergency tax code, which means they will likely tax you at the basic rate of 20%.
- You earn £1,500 per month
- Emergency tax is applied at 20%.
- Your tax would be £1,500 × 0.20 = £300 per month.
In this case, you’re paying the correct basic rate of 20%, but if your tax code was wrong or if you had multiple jobs, your employer might apply a higher rate temporarily.
Example 2: Multiple Jobs and Emergency Tax
Let’s say you have two jobs, but your employers don’t know about each other. If they both don’t have the right information about your combined earnings, both might apply emergency tax. This can cause you to pay more tax than you should.
- Job 1: You earn £1,000 per month.
- Job 2: You earn £800 per month.
- Total income: £1,800 per month.
- Your tax code is applied to each job as an emergency, so you could be taxed at a higher rate (e.g., 40%) on the second job, or possibly even on both jobs.
In this case:
- Job 1: You’re taxed at the basic rate of 20%. Tax for Job 1 would be £1,000 × 0.20 = £200.
- Job 2: Because your second job might be taxed at a higher emergency rate (say, 40%), tax for Job 2 would be £800 × 0.40 = £320.
So, you’d end up paying a total of £200 + £320 = £520 in tax, even though you’re only earning £1,800 per month.
3. Special Emergency Tax Codes
In some cases, your emergency tax code might include specific letters or numbers that change the amount of tax you’re paying.
- M1 or W1: These codes are used when your employer applies emergency tax based on a month 1 or week 1 basis. This means that only your earnings from that particular month or week will be taxed, without considering previous months or weeks.
- Example: You earn £1,200 in a month with an M1 code, and your emergency tax code applies the basic rate of 20%. You’ll pay £240 in emergency tax for that month.
- BR (Basic Rate): If you’re taxed under the BR code, it means your entire income will be taxed at the basic rate (20%). This often happens if you’re on multiple jobs or if your second income is taxed separately.
- Example: If you earn £1,000 a month under the BR code, you’ll pay £200 in emergency tax.
What If You’re on a Higher Tax Band?
If you’re a higher-rate taxpayer and your tax code is wrong, you could find yourself paying emergency tax at a higher rate.
- Basic rate: If you’re under the basic tax code, you’ll pay 20% on your income.
- Higher rate: If you should be taxed at the higher rate of 40% and you’re on emergency tax, you’ll be taxed at this higher rate.
Example 3: Higher Rate Taxpayer on Emergency Tax
Imagine you should be taxed at the 40% rate because you earn more than £50,000 per year. But because you’re on emergency tax, you’re being taxed at the 40% rate on all your income until your tax details are updated.
- You earn £3,500 per month.
- You’re taxed at the higher rate of 40%.
- Tax: £3,500 × 0.40 = £1,400.
In this case, you’re paying £1,400 in tax, which could be a lot higher than what you should be paying under the correct tax code.
What Are The Deadlines For the Emergency Tax?
If you’re placed on emergency tax, here’s what you need to know about the key deadlines:
1. HMRC Tax Code Correction Deadline
HMRC aims to correct your tax code by the end of the tax year (April 5th). If you provide the correct tax information to your employer, they should update your code to avoid an emergency tax.
2. Tax Payment Deadlines
- PAYE Employees: Your employer will deduct tax each month. There are no additional deadlines unless you need to file a self-assessment.
- Self-Assessment: If you file a self-assessment, your tax return deadline is January 31st. Taxes owed must be paid by this date.
3. Claiming a Refund for Overpaid Emergency Tax
You can claim a refund for overpaid emergency tax within 4 years from the end of the tax year in which the overpayment occurred. For example, overpaid tax from 2021 can be claimed until April 5, 2025.
The Impact of Emergency Tax on Your Pay
It’s important to know that being placed on emergency tax can leave you with a smaller paycheck than expected, especially if you’re taxed at a higher rate temporarily.
For example:
- You earn £2,000 in a month.
- If emergency tax applies at the basic rate of 20%, your tax will be £400.
- Your take-home pay would be £1,600.
However, if you were supposed to be taxed at the higher rate (40%), you might end up paying £800 in tax, and your take-home pay would drop to £1,200.
It’s a good idea to check your pay slips to make sure you’re not overpaying. If you notice that you’re being taxed too much, you can contact HMRC for a tax code correction.
When Will I Get My Money Back From the Emergency Tax?
If you’ve been paying emergency tax, you might be wondering when you’ll get your money back. Usually, once your tax code is corrected, your employer will stop deducting emergency tax. If you’ve paid too much, you can either get a refund directly from your employer or, in some cases, from HMRC. This process can take a bit of time, but most refunds will be paid back within a few months.
If you’ve been taxed incorrectly, don’t panic. Keep an eye on your pay slips and make sure your tax code is correct. If it’s wrong, contact HMRC to get the issue sorted.
How To Claim An Emergency Tax Refund?
Emergency tax rates are higher than the usual UK tax rates. When you have overpaid your taxes, you can claim your money back. After tax code correction, HMRC will inform you about your tax rebate if you have overpaid the tax. Here’s how to get it back.
Wait for a P800 Tax Calculation
HMRC will send you a P800 tax calculation at the end of the tax year. This will tell you whether you have paid more or less tax. You can get a refund online, provided you are entitled to it.
Contact HMRC Directly
You do not need to wait till the end of the tax year. You can get in touch with HMRC earlier by:
- Signing into your Personal Tax Account
- Making a call to HMRC using your National Insurance number, employer details, and income estimates.
Refund Timeline
After you have submitted a refund, it may take between 1 to 8 weeks to get the money back, depending on the method of claiming your refund and also depending on whether security checks are required or not.
Pension Emergency Tax
If your emergency tax is to do with the withdrawal of a pension, you might need to complete certain forms:
- P55: You have taken part of your pension, and you do not take regular payments.
- P50Z: You have taken out all your pension, and you are retired.
- P53Z: You have already taken out all your pension, and you are still working.
How Long Will I Be On Emergency Tax?
Most of the time, you’ll only be on emergency tax for a short period. Once your tax details are sorted, your tax code will be updated, and the emergency tax will be stopped. However, if you continue to be on emergency tax for a long time, it’s a good idea to contact HMRC to make sure everything is in order.
How To Avoid Emergency Tax?
While you can’t always avoid emergency tax, there are things you can do to make sure it doesn’t last longer than necessary:
- Update Your Tax Details: If you’ve recently changed jobs, make sure you provide your new employer with your full tax details, including your P45 or P60 from your previous job.
- Check Your Tax Code: Always check that your tax code is correct, especially when you start a new job or receive a new pay slip. Your tax code should match your personal circumstances.
- Contact HMRC: If you think you’re being taxed at the wrong rate or that your tax code is wrong, get in touch with HMRC to make sure everything is updated.
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Final Thoughts On Emergency Tax
While it’s never fun to see a higher deduction on your paycheck, an emergency tax is a temporary measure, and you can usually get any overpaid tax refunded once things are sorted. Just make sure you keep an eye on your tax code, update your details, and contact HMRC if you think there’s an issue.
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Disclaimer: The general information provided in this blog about how much is emergency tax includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.
