What does 500T tax code mean?
The 500T tax code is a provisional, non-cumulative code implemented by HMRC when sufficient information is unavailable for assigning a standard tax code.
HMRC issues a 500T code in specific circumstances like when you start a new job or have more than one source of income. It can also be used as a way to recover emergency tax.
In reality due to its temporary and non-cumulative nature, the 500T code can lead to your employer or pension provider deducting too much or too little tax.
HMRC states that the letter T is used in a tax code because “Your tax code includes other calculations to work out your Personal Allowance.”
Overpayment can occur if your tax-free personal allowance is underestimated, while underpayment may happen if the allowance is overestimated.
Either way the code usually needs adjusted once HMRC gathers sufficient information to assign you with a new permanent tax code.
Successfully managing the 500T code often involves contacting HMRC to check why you have been given the code in the first place, and taking prompt action if you are asked to provide information to help update your tax record.
When is the 500T tax code used?
Below are three typical reasons where HMRC can issue a 500T code. Each situation requires HMRC to gather extra details before they can evaluate and modify your tax code accordingly.
- If you start a new job through PAYE
The 500T code frequently comes into play when individuals commence new employment and will stay in use until HMRC obtains all essential information to assign a new updated tax code.
In situations where your new employer lacks complete information for determining your appropriate tax code, such as missing P45 documentation from your previous employment, they may temporarily implement the 500T code.
If this is the reason why you have been given the code you can ask your employer for a starter checklist which can help speed up the process.
- Complex tax situations
The 500T code often appears in cases involving individuals with a number of income streams or those with more complex tax circumstances.
This code enables HMRC to do more with their tax computations in comparison to more conventional tax codes.
It functions as an interim solution until a more comprehensive evaluation of your tax obligations can be completed.
- Emergency tax code
The 500T tax code occasionally operates as an emergency provision. The use of an emergency tax code is normal when HMRC requires supplementary information to calculate your personal allowance.
In these instances, the 500T code serves as a temporary resolution to ensure income tax is still collected in the short term.
Do I pay more tax with a 500T tax code?
Although the 500T tax code significantly impacts your income tax calculation it doesn’t necessarily mean you will pay too much tax.
It all depends on your overall tax situation which can vary for many different reasons.
The 500T code means your income is taxed on a non cumulative basis, with every pay period assessed independently for income tax purposes.
This means that previous earnings and tax contributions within the tax year are not factored into the current period’s tax calculation.
This restriction differs from standard tax codes, where cumulative calculations consider your entire tax year’s earnings and payments.
How can I check and review my 500T tax code?
When you need to review your tax code you can contact HMRC in a few different ways with online options usually being the quickest.
The HMRC income tax checker and digital assistant are available to everyone and should be able to start the assessment process.
Their income tax helpline can also be used during the week (Monday to Friday) but expect delays in answering your call.
