All the people that work and reside in the United Kingdom have a tax code that they received from the HM Revenue and Customs. The purpose of this tax code is simply to tell you the amount of allowances that you are entitled to, and hence help you in calculating the amount of tax that you are expected to pay. Despite the fact that many people do not really pay much attention to these codes, it is important to observe that knowing and understanding your tax code can be advantageous to the extent of helping you determine whether the government owes you some tax rebate.
Today, we are going to look at how you can calculate the amount of taxes that you will be expected to pay if at all you are under the tax code 653L.
calculating The Tax Free Allowance
The first step towards calculating the amount of taxes is calculating what your tax-free allowance is. In the case of someone whose tax code is 653L, the tax-free allowance will be:
653 X 10 = 6530
Here, the tax free allowance is 6530 pounds which is arrived at by taking the figures from the code and then multiplying the amount by 10 giving you 6530 pounds. When calculating your annual tax payable, the first 6,530 pounds of your income is not supposed to be taxed. This method that if you earn 6,530 ponds or less, you will pay zero tax; however, any single pound on top of this figure will be taxed at the rate that has been stipulated by the HM Revenue and Customs.
The Tax Rebate
As we have indicated above, knowing your tax code can help you know whether or not the Revenue and Customs owe you some money. But how does this come about?
Well, since as an employee, you pay your taxes by the Pay As You Earn scheme, the annual tax free allowance will not be used, but the monthly allowance is the one that will be used. The 6530 is divided by 12 months giving you a monthly tax-free allowance of 545 pounds. In coming up with the figure of 545 pounds, it is assumed that you will be earning a continued amount during the tax year. Now, imagine a scenario whereby you were employed from January to March, but then you lost your job and were unemployed during the year. The total amount of tax free allowance that you would have truly utilized would only have been 1635 pounds, and not the 6530 that you are entitled to. For this reason, you will need to ask the HM Revenue and Customs to refund you any monies that they owe you.