The 0T tax code is a default tax code HMRC uses when you've either used up your Personal Allowance or started a new job. In the latter, if your employer doesn't have your tax details on hand, they'll assign the 0T tax code.
The 0T tax code implies that you don't have any Personal Allowance remaining, so all your income is subject to tax. This means the Income Tax rate won't exclude the Personal Allowance amount that is generally tax-free.
Studies by the Institute of Fiscal Studies show that over 40% of UK taxpayers are paying a higher tax rate than they should. If you find yourself in this predicament, you are not alone. But before picking up the phone to HMRC, it's important to understand what is 0T tax code, why and how this default code gets applied, and how you can avoid it in the future. Knowing these answers will ensure that you pay the right amount of tax relative to your income.
What does the 0T tax code mean?
The tax code 0T indicates that you don't have a tax-free allowance to reduce your taxable income.
Currently, HRMC provides a standard Personal Allowance of £12,570, which is the threshold of your income that is tax-free. However, with the 0T tax code, your entire income becomes liable to tax payment.
Unlike other tax codes, such as BR (Basic Rate), DO, or D1, the 0T 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 naturally be higher compared to someone with a lower income. For high-income individuals, the 0T tax code will apply a tax of 40% - 45% of your total income.
Keep in mind that the 0T 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 0T?
Here are the main reasons HMRC might have placed you on the 0T tax code:
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You have just started a new job and haven't been able to give your employer your latest P45, or you haven't completed a P46
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You don't have sufficient information to give to your new employer for completing a starter checklist
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You've already used up your tax-free Personal Allowance
How much Income Tax do I pay with a 0T tax code?
The amount of Income Tax you'll pay with a 0T tax code isn't fixed at one rate.
The rate depends on which tax band your income falls into. The most common Income Tax band is the basic rate, which is 20% of all of your taxable earnings (including what would normally be your Personal Allowance).
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For residents of England, Northern Ireland, and Wales to be eligible for the basic rate, their income cannot exceed £37,700.
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The 0T tax code for high-income individuals within the same region is applied at 40% for earnings between £37,701 - £125,140.
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The 0T tax code for individuals with additional income (multiple earnings) is applied at 45% for earnings above £125,141.
Do I get a rebate under the 0T code?
Like with most tax codes, you are eligible for a tax refund, especially if you did not update your code promptly and are now dealing with overpaid taxes. Keep an eye on your payslip and tax documents, and if you happen to spot the 0T code, contact HMRC as soon as possible to clarify your situation and apply for a rebate.
How can I check if I've overpaid tax?
The easiest way to check if you've paid too much tax is to review your tax code and compare it with how much tax you've actually paid. You can do this by logging into your HMRC personal tax account or checking your payslips for the current pay period.
If you're on the 0T tax code, it's worth double-checking whether it's the correct tax code for your situation, particularly if you've recently changed jobs or were unable to submit a P45.
If you find that your tax details aren't quite right and you've paid more than necessary, you may be due a tax rebate. You can usually claim this through HMRC.
After processing your information, if HMRC approves your claim, you will promptly receive your rebate along with your salary. No further action is required to receive a refund for overpaid taxes.
How do I change my 0T tax code?
In order to update or verify if your 0T tax code is correct, you should first attempt to use the HMRC app or log in to your personal tax account. After confirming that you are indeed on the 0T 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. Have your National Insurance Number ready for quick resolution.
How Can Unicorn Accountants Help You?
For UK taxpayers, understanding the 0T tax code is crucial, as it directly impacts how much Income Tax you need to pay. Having clarity about what this code means, when it applies, and what percentage it charges will help you to better understand your Income Tax responsibilities.
Unicorn Accountants is a leading online accountant in the UK with a deep understanding of the UK tax system. Our friendly team can help you understand the implications of the 0T tax code, fix any errors, guide you to avoid tax overpayment, and support you in receiving your actual tax code.
Speak to our expert tax accountants today on 0208 064 0454 or book a call to discuss your needs.
Frequently asked questions about 0T tax codes
Does the 0T code affect self-employed individuals?
The 0T tax code applies to employees under the PAYE tax code system, so if you're self-employed, it shouldn't affect you. Instead, you'll report your total earnings through a Self-Assessment tax return and pay tax based on your income and expenses for the relevant tax year.
Is the 0T tax code permanent?
0T tax codes are usually more permanent for high-earners or if you've used up all your Personal Allowance. However, you may be put on the 0T tax code as a temporary measure when changing jobs or if HMRC doesn't have the correct tax code details.
What is the difference between the emergency tax code and the 0T tax code?
Emergency tax codes end in W1, M1, or X and happen when your employer or HMRC doesn't have the correct information about your income. Unlike the 0T tax code, emergency tax codes are always temporary, and you'll usually receive a new tax code as soon as your tax situation becomes clear.
What is the difference between 0T and BR tax codes?
Both the 0T and BR tax codes preclude you from receiving a tax-free Personal Allowance. The primary difference is the applicable tax rate. Under the tax code BR, your code is only subject to a basic tax rate of 20%. In contrast, the 0T tax code is calculated based on your income. The basic tax rate applicable to the 0T 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 BR code is relatively simple to calculate; i.e., if you pay tax at the basic rate, the two tax codes are identical.