HMRC warning to people after Personal Tax Allowance 'disappears entirely'

Taxpayers have been warned by HMRC after seeing their Personal Allowance disappear "entirely". A tax expert has spoken out, issuing a warning to UK households over rules and regulations over tax bands and how much you owe depending on what you earn.

Sarah Hollowell, Head of Tax and Trustee Services, explained: "Under the current code system, an employee’s pay for the whole tax year is estimated from the information supplied each month. This means that if someone receives a bonus, and therefore has an unusually high salary for one month, HMRC’s systems will take this to be 1/12th of their annual salary and may re-issue a tax code on the assumption that their pay has increased.

She said: "If your total salary for one month implies you annually earn £100,000 or over, you could end up paying an effective tax rate of 60 percent tax on your earnings. This is because once an individual earns over £100,000, their annual allowance begins to fall due to the 'personal allowance taper'."

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"Essentially, for every £2 you earn over £100,000, your personal allowance is reduced by £1, meaning that once you earn £125,140 or more, your allowance disappears entirely," she said. "As a result, a bonus one month could skew HMRC’s view of what your annual salary is, and cause them to issue an incorrect tax code.

"If you think this may affect you, it’s important to check any new tax codes received and flag any errors to HMRC to avoid paying too much tax." By understanding your tax code, regularly checking your payslip, and either updating HMRC on any changes or flagging where they may have made an error, you can ensure that you’re paying the correct amount of tax.

If you’re unsure about your current situation and want to talk to someone in more detail, it is worth getting in touch with a financial advisor to help you manage your finances effectively and avoid any unpleasant surprises from HMRC.