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What is an OT Tax Code?

Updated: Mar 19

The OT tax code states that you can't use any tax-free personal allowance. You could end up paying more income tax if you don't have a tax-free personal allowance. This may be because you have already used up your personal allowance or because your employer doesn't have the correct details to give you a tax code. The standard Personal Allowance in the UK is £12,570, which is the threshold of your income up to which you do not have to pay tax. Although it may seem like a random collection of letters and numbers, your tax code is crucial in determining how much money you have to hand over to HMRC.


HMRC does everything possible to provide the correct tax code. It issues millions of codes every year, so there is room for error. It is your responsibility to inform HMRC if you are on the wrong tax code.


What is an OT Tax Code?


What are the Reasons for Giving the OT Tax Code?

These are the main reasons you might be given the OT tax code:


● You have started a new job. You don't have a p45 form to give your new employer.

● You didn't complete a P46

● Your personal tax-free allowance has been used

● You've just started working for a new employer, and you can't give all the information that your employer should have in order to provide you with a tax code.


An Insight into the Reasons

In the UK, being placed on an OT tax code can occur under various circumstances, each signifying a different situation regarding an individual's income and tax status. Here are the key reasons someone might be assigned an OT tax code:

  1. Exceeding Basic Rate Tax Band: If your earnings surpass the basic rate tax band, the OT emergency tax code may be applied. This tax code is often used in emergency situations where HMRC needs to ensure tax is collected appropriately​​.

  2. Lack of Necessary Documentation: If you start a new job and fail to provide your new employer with your P45 from your previous job, or if you haven't filled in a P46, HMRC is likely to assign you an OT tax code. This situation typically arises when HMRC lacks sufficient information to determine your correct tax code​​.

  3. Temporary Assignment: Sometimes, HMRC assigns an OT tax code temporarily until they gather more information about your income. It's essential to verify the accuracy of this tax code if you find it on your payslip. In cases where it's applied mistakenly, contacting HMRC to correct it is crucial​.

  4. No Personal Allowance: The OT tax code is unique in that it does not provide any tax-free personal allowance. This means all your income will be taxed from the first pound earned. Such a situation can arise if you've begun a new job and your employer doesn't have the necessary details for a proper tax code, or if your personal allowance is fully utilized by another job or pension income​​​.

  5. Impact on Tax Deductions: With no personal allowance to reduce your taxable income under the OT tax code, you start paying tax immediately on all earnings. For instance, if you have a second job earning £10,000 a year, with your personal allowance completely used by your primary job, your entire income from the second job would be taxable​.


In summary, the OT tax code in the UK is applied in various scenarios, primarily revolving around insufficient information for HMRC to assign a proper tax code or the exhaustion of personal tax-free allowance. It's a temporary measure in many cases and can be rectified once the correct information is provided to HMRC. Understanding the implications of this tax code is crucial for managing your tax liabilities effectively.


How Much Income Tax Do I Pay with an OT Tax Code?

The amount you earn will determine the percentage you pay.


If you are a resident of Northern Ireland, Wales, or England then you'll pay:


● 20% on earnings up to £37,700.

● 40% on earnings between £37,701 and £150,000.

● 45% on earnings above £150,000.



If you are a resident of Scotland then you'll pay:


● 19% on earnings up to £2,162.

● 20% on earnings between £2,163 and £13,118.

● 21% on earnings between £13,119 and £31,092.

● 41% on earnings between £31,093 and £150,000.

● 46% on earnings above £150,000.



What's the Difference Between OT and BR Tax Codes?

Both the OT and BR tax codes give you no tax-free personal allowance. The BR tax code taxes your salary at the basic rate (20% if you earn less than £37,700). The OT tax code, on the other hand, taxes you at the basic (20%) or higher (40%) rates and additional tax rates (45%).


Note: If your income is less than £37,700, and you pay only the basic rate of tax, then there are no differences between the BR and OT tax codes.


What’s 2024 Personal Allowance Got to Do With Your Tax Code?

Your tax code is how HMRC, you, and your employer all know your tax position. It’s really crucial to make sure it’s right. The numbers in your tax code refer to how much Personal Allowance you’re entitled to.


1257 X 10 = 12,570 the Personal Allowance rate is £12,570. This means that your income up to £12,570 is tax-free. And everything after that is taxed.


For example, You earn £35,000 per year and are entitled to the full Personal Allowance of £12,570. What do you pay tax on? You don’t pay any tax on that first £12,570. But then you’ll pay a Basic Rate of 20% income tax on the remaining £22,430. (£35,000 – £12,570 = £22,430)


Tax Code Letters Used In All 4 UK Countries


What Do The Letters In Code Stand For?

The letters all stand for a piece of information that’s necessary to calculate how much income tax you owe. Some tax code letters are used in all 4 UK countries, for example:


L: You get the full personal allowance amount

M: Your spouse or civil partner has transferred some of their Personal Allowance to you

N: You’ve transferred some of your Personal Allowance to your civil partner or spouse

T: Income over £100,000, Personal Allowance goes down by £1 for every £2 over £100,000. So your number will show how much Personal Allowance you’re now entitled to, with the suffix ‘T’.


Letter combinations and other letters are used in some countries in the UK only. This is because the Scottish and Welsh governments have delegated powers to set their own income tax rates and differentials, even though the personal allowance rate is the same throughout the UK.


England and Northern Ireland

OT: You’ve used your full Personal Allowance, or you’ve got a new employer and they don’t have the right information to give you a tax code

BR: All this income is taxed at the Basic Rate, which usually applies to a pension or second job

D0: Higher Rate of income tax applies

D1: Additional Rate of income tax applies

NT: Not taxed income (if you’re self-employed, not on PAYE)


Wales

‘C’ denotes a Welsh taxpayer. The following bits of code shows you which rate of tax applies to your income.


CBR: Welsh Basic Rate

CD0: Welsh Higher Rate

CD1: Welsh Additional Rate

COT: You have used your full Personal Allowance


Scotland

Scotland has expanded its income tax brackets to five different levels. The prefix 'S' indicates that you are a Scottish taxpayer and the other letters indicate the applicable rate of Scottish income tax.


SBR: Scottish Basic Rate

SD0: Scottish Intermediate Rate

SD1: Scottish Higher Rate

SD2: Scottish Top Rate

SOT: You’ve used up your Personal Allowance


What Happens If You Don't Pay Enough Tax?

HMRC will recalculate your tax if they discover that you have underpaid tax for any reason. If you owe more than £3,000, they will also send you a letter.


How Do I Change My Tax Code?

It is possible to correct an error in your tax code if you find out. It is possible to correct the error online, by phone, or through an accountant.


Online Method

You will need to have an account to access the HMRC website. This will allow you to check and update your tax code, notify HMRC of any changes to your tax code, and receive an estimate of the tax you'll be paying for the tax year.

By Using Your Phone

You can change your tax code by calling the HMRC at 0300 200 3300. They are available Monday through Friday, from 8:00 am to 09:00 pm. When you call, make sure you have your National Insurance Number.


Consult a Tax Accountant

This route has the advantage that your tax accountant can ensure that you are tax-compliant and have not paid too much tax. They can also help you get a tax return quickly and efficiently.


Updates in the Spring Budget 2024 for OT Tax Code

The UK's Spring Budget 2024 introduced a raft of measures aimed at adjusting the nation's fiscal policies in response to current economic conditions. Among these updates, the adjustments to the OT tax code represent a critical shift that affects a specific subset of taxpayers. The OT tax code is used by HMRC (Her Majesty's Revenue and Customs) when an individual does not have any personal allowance left. It means that all income is taxed at the basic, higher, or additional rates, without any tax-free allowance. This article explores the updates related to the OT tax code as announced in the Spring Budget 2024, providing detailed insights into the changes and their implications.


1. No Change in Personal Allowance

The Spring Budget 2024 maintains the personal allowance at £12,570, unchanged from the previous year. This decision directly impacts individuals on the OT tax code, as the threshold at which no personal allowance is given remains static. The lack of an increase in the personal allowance means that individuals with incomes high enough to breach the threshold will continue to see all their income taxed from the first pound earned, without any tax-free portion.


2. Adjustments in Income Tax Bands

Despite the personal allowance freeze, adjustments to income tax bands are noteworthy:


  • The basic rate band (20%) applies to incomes up to £50,270, aligning with the previous tax year's threshold.

  • The higher rate band (40%) covers incomes from £50,271 to £150,000.

  • Incomes above £150,000 are taxed at the additional rate of 45%.


The thresholds for these tax bands have not been altered in the Spring Budget 2024, which influences the application of the OT tax code, especially for taxpayers with multiple sources of income that cumulatively push them into higher tax brackets.


3. Increase in National Insurance Contribution (NIC) Thresholds

An update of particular interest is the change in the threshold for National Insurance contributions:


  • The threshold for starting National Insurance contributions has been increased to £11,000 per year. Although this adjustment does not directly affect the OT tax code, it is significant for individuals whose total income from various sources might place them in different taxation scenarios. This increase in the NIC threshold can slightly mitigate the overall tax burden on individuals, particularly those on the OT tax code, by reducing their National Insurance payments.


4. Enhanced Clarity and Communication from HMRC

The Spring Budget 2024 also emphasizes improved clarity and communication from HMRC regarding tax codes. This initiative aims to ensure that taxpayers understand their tax codes and the reasons behind them. For those assigned the OT tax code, this means better support in understanding their tax obligations and any potential adjustments due to changes in their income or personal circumstances.


Implications of the OT Tax Code Updates

These changes have several implications:


  • For Taxpayers: Individuals on the OT tax code must be vigilant about any changes in their income that could affect their tax status. The static personal allowance and unchanged income tax thresholds mean careful financial planning is essential to optimize tax liabilities.

  • For Employers: Employers need to ensure they apply the correct tax codes to their employees' payroll. The emphasis on improved communication from HMRC should be matched by employers' efforts to maintain accurate and up-to-date employee data.


Navigating the Changes

Taxpayers and employers alike must stay informed about these updates and their potential impacts. Taxpayers should:


  • Review their tax codes on payslips.

  • Ensure their employers and HMRC have the most current information about their income and personal circumstances.

Employers should:

  • Keep abreast of any changes in tax legislation.

  • Use updated payroll software that reflects the latest tax rates and thresholds.


The Spring Budget 2024's treatment of the OT tax code underlines the government's approach to taxation in the current economic climate. While the personal allowance and income tax thresholds remain unchanged, efforts to improve clarity and communication by HMRC are a welcome development for those on the OT tax code. By staying informed and proactive, taxpayers and employers can navigate these changes effectively, ensuring compliance and optimizing tax liabilities.



How to Apply for an OT Code in the UK: A Step-By-Step Guide


Step 1: Determine Your Need for an OT Tax Code

The first step in applying for an OT tax code is to ascertain whether you actually need it. Typically, an OT tax code is applied automatically by HMRC under certain conditions such as starting a new job without a P45, or when your tax-free allowances have been used up. If you suspect your tax code is incorrect, or if you've had multiple jobs and think your allowances haven't been allocated properly, you might need an OT code.


Step 2: Gather Required Documents

Before contacting HMRC, prepare the necessary documentation. This includes:

  • Your National Insurance number, which is essential for any tax-related inquiry.

  • Details of your current employment, including your employer's tax office reference number and your employee number.

  • Any previous employment details within the current tax year, including P45s if available.

  • Information on any other income sources, such as savings interest or rental income, which may affect your tax code.


Step 3: Contact HMRC

You do not typically need to fill out a specific HMRC form to apply for an OT tax code in the UK. Once you've gathered all required documents, the next step is to contact HMRC directly. This can be done via:


  • Telephone: HMRC's helpline is available for direct inquiries. Be prepared for potential wait times. Telephone: 0300 200 3300 and Outside UK:+44 135 535 9022

  • Online: Use HMRC's digital services to send a query or update your information. You might need to create an account if you haven't already.

  • Post: For those who prefer or require a paper trail, contacting HMRC by mail is an option, though responses may take longer.


Step 4: Provide Necessary Information to HMRC

When you get in touch with HMRC, be clear about why you believe you need an OT tax code. Provide them with all the information and documents you've gathered. HMRC will review your tax situation based on the details of your employment and any other income sources you have.


Step 5: HMRC Review and Decision

HMRC will review the information provided to determine whether an OT tax code is appropriate for your situation. This process may involve a review of your income, tax paid in the current year, and any allowances or deductions you're entitled to. HMRC may request additional information if needed.


Step 6: Notification of Your New Tax Code

If HMRC decides that an OT tax code is correct for your situation, they will issue a new tax code notice (P2) to you and your employer. This notice will explain the reasons for the change and how it will affect your take-home pay. If you are employed, your employer will adjust your tax deductions accordingly in your next pay.


Step 7: Monitor and Update Your Tax Code as Necessary

Your tax situation can change over time due to various factors like changing jobs, having multiple sources of income, or receiving taxable benefits. It's important to monitor your tax code and inform HMRC of any changes that may affect your tax code. You can do this through the same channels used to apply for the OT code.


Final Steps: Ensuring Accuracy and Compliance

Receiving an OT code means all your income will be taxed without any personal allowance. It's crucial to ensure that this is accurate for your situation to avoid paying too much or too little tax. Always keep a record of communications with HMRC and any documents related to your tax affairs. If your circumstances change, such as starting a new job or a change in income, inform HMRC promptly to ensure your tax code is updated.


In conclusion, applying for an OT tax code in the UK involves a series of steps, from determining your need for one to contacting HMRC and providing necessary documentation. It's a process that requires diligence and timely communication with HMRC to ensure your tax affairs are in order. Remember, your tax code plays a significant role in how your income is taxed, and ensuring it accurately reflects your situation is key to managing your finances effectively.


How Can a Tax Accountant Help You If You Get an OT Tax Code in the UK


How Can a Tax Accountant Help You If You Get an OT Tax Code in the UK


When you're assigned an OT tax code in the UK, it signifies that you're not eligible for any personal allowance, meaning all your income from the relevant source will be taxed from the first pound earned. This can happen for several reasons, such as starting a new job without providing the necessary documentation or having used up your tax-free personal allowance elsewhere. In such situations, a tax accountant can be invaluable in helping you navigate the complexities of the tax system and ensuring that you're not overpaying on your taxes.


Understanding the OT Tax Code

The first step a tax accountant will take is to help you understand what an OT tax code means for your financial situation. They will explain that under this code, there's no personal allowance, and all your income from the specific source will be taxed. This understanding is crucial, especially if you have multiple income sources or have recently changed jobs.


Assessing Your Tax Position

A tax accountant will assess your overall tax position, considering all your income sources, to determine if the OT tax code is accurate for your situation. They'll review your earnings, personal allowance usage, and other relevant factors like pensions or additional employment. This comprehensive review ensures that the OT tax code is indeed appropriate and not applied in error.


Correcting Tax Code Errors

If the OT tax code has been applied incorrectly, a tax accountant can liaise with HMRC on your behalf. They will provide HMRC with the necessary information, such as your correct income details or missing documentation like a P45 or P46. By doing so, they can facilitate the correction of your tax code, potentially leading to a more favorable tax situation.


Optimizing Tax Efficiency

Tax accountants are skilled in identifying ways to optimize your tax efficiency. If you're on an OT tax code due to having multiple income sources, they can advise on how best to utilize your personal allowance and potentially restructure your finances to reduce your overall tax liability.


Dealing with Overpaid Tax

If you've overpaid tax as a result of being on an OT tax code, a tax accountant can help you claim a refund from HMRC. They'll calculate the exact amount of tax you've overpaid and assist in the process of reclaiming it, ensuring that you're not out of pocket due to a tax code error.


Ongoing Tax Planning

A tax accountant doesn't just help with immediate issues. They provide ongoing advice to prevent future problems. This could involve regular reviews of your tax code and income, especially if your circumstances change, like starting a new job or receiving a pension.


Navigating Complex Situations

The OT tax code can be more complex for high earners (those earning over £100,000) due to the gradual loss of personal allowance. A tax accountant is particularly valuable in these situations, offering strategies to mitigate the tax impact and ensuring compliance with tax laws.


Help with Communication and Paperwork

Dealing with HMRC can be daunting. A tax accountant can handle all communication and paperwork on your behalf, making the process stress-free. They know the right channels to use and the correct way to present information to HMRC.


Advice on State Benefits and Allowances

If your OT tax code affects your eligibility for state benefits or allowances like Marriage Allowance, a tax accountant can provide guidance on how to manage these aspects effectively.


Representation in Disputes or Audits

In the unlikely event of a dispute with HMRC or if you're subject to an audit, having a tax accountant by your side is invaluable. They can represent you, ensuring that your interests are protected and that you have professional support throughout the process.


Educational Resource

Tax accountants also serve as an educational resource, keeping you informed about tax laws and how they affect you. This knowledge can be crucial in making informed decisions about your finances and tax obligations.


Peace of Mind

Perhaps most importantly, a tax accountant offers peace of mind. Knowing that a professional is managing your tax affairs can alleviate the stress and uncertainty that comes with tax issues, allowing you to focus on other aspects of your life.


In conclusion, a tax accountant plays a critical role when you're assigned an OT tax code in the UK. They offer a range of services from correcting errors, optimizing tax efficiency, handling communication with HMRC, to providing ongoing advice and support. Their expertise ensures that you are not only compliant with tax laws but also positioned to make the most of your financial situation.


20 Most Important FAQs about the OT Tax Code in the UK


Q: Does the OT tax code apply to all income streams? 

A: The OT tax code applies specifically to the income stream it's assigned to. If it's assigned to a job, all income from that job will be taxed.


Q: Can the OT tax code change during the tax year? 

A: Yes, the OT tax code can be updated during the tax year if HMRC receives updated information about your income or tax situation.


Q: What happens if the OT tax code is applied in error? 

A: If the OT tax code is applied in error, it can be corrected once HMRC is informed and provided with the correct details.


Q: Is the OT tax code common for high-earners? 

A: Yes, high-earners, especially those earning over £100,000, may be assigned an OT tax code as their Personal Allowance decreases.


Q: Does the OT tax code affect how state benefits are taxed? 

A: The OT tax code itself does not directly affect the taxation of state benefits, but changes in your income that lead to the OT code might impact taxable state benefits.


Q: Can I have an OT tax code if I am self-employed? 

A: The OT tax code is typically not used for self-employed individuals, as they usually pay tax through self-assessment, not PAYE.


Q: Does the OT tax code apply to pensions? 

A: Yes, the OT tax code can apply to pensions if your Personal Allowance is used up or if your pension provider lacks the necessary details to assign a proper tax code.


Q: How does the OT tax code affect multiple job holders? 

A: For individuals with multiple jobs, the OT tax code may be applied to secondary employment if the Personal Allowance is already used up by the primary job.


Q: Is there a specific tax rate for the OT tax code? 

A: The tax rate under the OT tax code depends on your total income. It could be taxed at the basic, higher, or additional rate depending on your earnings.


Q: Can the OT tax code result in overpaid tax? 

A: Yes, if the OT tax code is incorrectly applied or not updated, it may result in overpaid tax, which can be reclaimed from HMRC.


Q: Does the OT tax code affect my eligibility for Marriage Allowance? 

A: The OT tax code itself does not directly affect your eligibility for Marriage Allowance, but changes in your income that lead to the OT code might.


Q: Can company benefits influence the assignment of an OT tax code? 

A: Yes, receiving certain company benefits can impact your tax code, potentially leading to the assignment of an OT tax code.


Q: What should I do if my OT tax code is not corrected automatically? 

A: If your OT tax code is not corrected automatically, you should contact HMRC to provide the necessary information and request a code review.


Q: How does the OT tax code interact with Scottish and Welsh tax rates? 

A: In Scotland and Wales, specific variations of the OT tax code (S0T and C0T) are used, taking into account the different income tax rates in these regions.


Q: Does the OT tax code have a different meaning in Scotland and Wales? 

A: The fundamental meaning of the OT tax code remains the same across the UK, but specific variations (S0T, C0T) are used in Scotland and Wales.


Q: How long does it typically take for an OT tax code to be corrected? 

A: The time it takes for an OT tax code to be corrected can vary, depending on when HMRC receives and processes the necessary information.


Q: Can an OT tax code be applied to non-employment income, like investments? 

A: The OT tax code is generally used for employment or pension income. Investment income is usually taxed differently, not under PAYE.


Q: What should I do if I disagree with the OT tax code assigned to me? 

A: If you disagree with the OT tax code assigned to you, contact HMRC for clarification and provide any relevant information to resolve the issue.


Q: Can the OT tax code impact my overall tax liability? 

A: Yes, the OT tax code can impact your overall tax liability, as it may result in different taxation rates being applied to your income.


Q: What role does my employer play in correcting an OT tax code? 

A: Your employer can provide updated information to HMRC but ultimately, it's HMRC's responsibility to correct your tax code. Your employer will then implement the new code in payroll.

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