The OT tax code is a default tax code used by HMRC in the event you do not have any personal allowance remaining or when you start a new job. In the latter, if your new employer does not have details of your tax code, they will assign the OT tax code.
The OT tax code implies that you do not have any personal allowance remaining i.e., your total income will be taxed. The income tax rate applicable will not exclude the personal allowance which is generally tax free.
Studies by the Institute of Fiscal Studies show that over 40% of all taxpayers in the UK pay a higher tax rate than they are liable to. If you find yourself in this predicament, you are not alone. But before you start calling the HMRC, it’s imperative to understand what is OT tax code, why and how the default tax code gets applied, and how to avoid (if possible) this code in the future. Knowing these answers will ensure that you pay the right amount of tax relative to your income.
What Does the OT Tax Code Mean?
The tax code OT implies that you do not have a tax-free personal allowance to offset your taxable income. At present, the HRMC has established a standard Personal Allowance of £12,570, which is the threshold of your income that is tax-free. However, the OT tax code will subject your entire income liable to tax payment.
Unlike other tax codes like BR (Basic Rate), DO, or D1, the OT tax code is not a flat rate tax. It takes into account taxpayers in the higher-mid-basic tax bands. If you are a high-income individual, your tax rate will be substantially higher when compared to the tax rate for an individual with a lower income. For high-income individuals, the OT tax code will apply a tax of 40% - 45% of your total income.
Keep in mind that the OT code is a default measure and should be viewed as transitional under HRMC’s applicable tax rates. As with any temporary measure, it’s your responsibility to rectify the tax code to avoid overpaying on your taxes.
Why Do I Have the Tax Code OT?
The main reasons for the OT tax code HMRC gives are as follows:
- You have just started a new job and cannot give your employer the last P45, or did not complete a P46.
- You do not have sufficient information to give to your new employer to complete a starter checklist.
- You have used up your tax-free personal allowance.
What is the Difference Between OT and BR Tax Codes?
Both the OT and BR tax codes preclude you from receiving a tax-free personal allowance. The primary difference is the applicable tax rate. Under the BR tax code, your code is only subject to a basic tax rate of 20%. In contrast, the OT tax code is calculated based on your income. The basic tax rate applicable for the OT tax code is 20%, the higher rate is applied at 40%, and the additional tax rate is applied at 45%. While both tax codes skip the personal allowance, the basic rate is relatively simple to calculate; i.e., if you pay tax at the basic rate, the two tax codes are identical.
How Much Income Tax Do I Pay with a OT Tax Code?
The income tax amount you pay with the OT tax code, UK is not set at a flat rate.
The rate you pay depends on your tax band relative to your income. The most prevalent tax rate is the basic rate, which is 20% of all of your taxable earnings (including personal allowance).
- For residents of England, Northern Ireland, and Wales to be eligible for the basic rate their income cannot exceed £37,700.
- The OT tax code for high-income individuals within the same region is applied at 40% for earnings between £37,700 - £150,000.
- The OT tax code for individuals with additional income (multiple earnings) is applied at 45% for earnings above £150,000
Do I Get a rebate under the OT code?
Like with most tax codes, you are eligible for a tax refund particularly in the event that you did not update your code promptly and are now dealing with overpaid taxes. It is, therefore, imperative that you keep an eye on your payslip and tax documents. If you happen to find the OT code, immediately bring it up with HMRC for clarification and apply for a rebate.
After processing your information, if your claim is approved by HMRC, you will promptly receive your rebate along with your salary. No further action is required to receive overpaid taxes.
How Do I Change My OT Tax Code?
In order to modify or verify the correctness of tax code OT, you should first attempt to use the HMRC app or login to your personal tax account. After confirming that you are indeed on the OT code, there are a number of ways to go about changing to the appropriate code.
HMRC offers free phone and online assistance. You can reach them by calling 0300 200 3300. The office is operational between 8:00 AM – 9:00 PM. Ensure you have your National Insurance Number handy for quick resolution.
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How Can Unicorn Accountants Help You?
For UK taxpayers, the OT tax code is crucial since it determines the amount of income tax that must be paid. Understanding tax code OT's meaning, applicability, and percentage will help you better comprehend the taxes that are related to your income tax liability.
Unicorn Accountants is a leading online accountant in the UK who can help you with OT tax code matters. They can help you understand the implications of the OT tax code, rectify errors in the tax codes, and provide guidance against tax overpayment. The company is an expert in optimising tax calculations, securing refunds, and facilitating code revisions through HMRC for improved financial results.