It’s time to explain tax codes in plain English

3 months ago admin 0

Sharing a cab yesterday with my Uncle ‘tax’ Tony, we got onto the rather sexy topic of ‘tax codes’. While the phrase itself is normally enough to bore drying paint, these codes are the knife behind the mammoth errors in tax affecting millions (see the Tax Code Checker for whether you can reclaim), and for me one simple change would go a long way…

The problem with tax codes

When you first come across tax codes, they’re a rather bewildering series of letters and numbers. The typical tax code is:

647L

It’s not exactly obvious is it? According to Tony, whose instititutional memory is far longer than mine (he’s been a senior tax accountant for years (see Tesciuba limited), it’s likely to stem from a time when computers had little memory space, so every letter was an issue.

The code itself is an instruction to the payroll. In this case the “647” means the individual can earn £6475 before tax is deducted (ie, the 647 plus a 5 on the end). The L means it’s standard taxation.

Again according to Tax Tony, the L originally stood for ‘Lower’ as there used to be two standard bands, the Lower one for single people, the Higher for married. Yet since married couples’ allowances were chopped there’s only the L left (to see what your current code means, go to the tax code guide).

The plain English version

It seems to me there is no huge barrier to quickly turning this code into something people could understand much more easily. It’s especially useful after the latest fiasco. In my world the code above would be:

£6,475 Standard

OK, it’s a little bit longer, but computers these days can handle that. And while, as Tony pointed out when I suggested it to him, “the tax code is an instruction to the employer not the employee”, the onus is on all of us to ensure our code is correct. We’re the ones who suffer if there’s an underpayment.

At least by translating it into plain English, people are encouraged to try and look at it and understand what it means. It would be doubly useful if there were also a transitional system like this:

£6,475 Standard
(647L)

That way you kill two birds with one stone.