What is an OT Tax Code?

ot tax code

An OT tax code means you currently have no tax-free allowance applied to your earnings. This allowance called the personal allowance, is a set amount of income you can earn each year without paying income tax. The OT code signifies one of two situations:

  • Temporary Issue: This is the most common scenario. The OT tax code is often a temporary measure used by HMRC (the UK tax authority) until they have enough information to assign you the correct tax code. This can happen if you’re starting a new job and haven’t provided your P45 (a document from your previous employer detailing your tax history).
  • Used Up Allowance: An OT tax code might be applied less commonly if your personal allowance has already been used up from another job or pension. This ensures you pay the correct amount of tax across all your income sources.

The “OT” itself stands for “Other” and “Temporary” – highlighting that this code is a placeholder until HMRC (the UK tax authority) gathers the information they need to assign your proper tax code.

What Does an OT Tax Code Mean for Me?

The key consequence of the OT tax code is that you’ll initially pay more tax than you might with a standard code. This is because you’re not receiving the tax-free benefit of your allowance.

However, there’s no need to panic. The OT tax code is usually temporary. Once HMRC receives the necessary information, they’ll update your code to reflect your proper tax allowance.

What to Do if You Have an OT Tax Code

If you see an OT code on your payslip, here are the recommended steps:

  • Don’t Worry: The OT code is a common occurrence and shouldn’t cause alarm.
  • Check Your Records: Ensure you’ve provided your P45 to your new employer (if applicable).
  • Contact HMRC: If you still need to provide a P45 or believe there might be an error, contact HMRC to clarify your situation. You can do this online or by phone.
  • Keep Records: Maintain copies of any communication with HMRC regarding your tax code.

OT vs. BR Tax Code

It’s important to distinguish the OT code from the BR tax code, another common code for new starters. The BR code applies a basic rate of tax to your earnings. While you won’t benefit from your allowance initially, the BR code is a flat rate, unlike the OT tax code which adjusts based on your income level. This means if you’re a higher or additional rate taxpayer, the OT tax code might result in more tax being deducted compared to the BR code.

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

Unlike some other temporary tax codes, OT isn’t a flat rate. It applies the progressive tax system, meaning the more you earn, the higher the tax bracket you fall into. This can result in you paying more tax than necessary, especially if you’re entitled to a tax-free allowance. For example, if you normally qualify for the basic tax rate but have an OT tax code, you’ll start paying tax on your first pound earned.

Read also: What is a Tax Reference Number?

OT Tax Codes and Changing Employer

The OT tax code is typically used only with your new employer until they receive the necessary details. If you haven’t provided your P45, supplying it can expedite the process of assigning the correct code. However, even without your P45, HMRC may be able to gather the information electronically to update your code.

Am I Due an OT Tax Code Refund?

Potentially. If you have an OT code but are entitled to a tax-free allowance, you’ve likely overpaid tax. The good news is you can claim this back through a tax return at the end of the tax year. If you’re unsure about filing a tax return, it might be helpful to consult with a tax advisor or accountant.

How Do I Change My OT Tax Code?

The OT tax code is temporary, so your employer should update it once they receive the relevant information from HMRC or through your P45. However, you can contact HMRC directly to discuss your situation and ensure they have the correct details to assign the proper code. They may request documents like your P60 (a year-end tax summary from your employer) or payslips to verify your earnings and allowances.

Conclusion

Navigating tax codes and allowances can be complex, especially if you have multiple jobs or sources of income. If you’re unsure about your tax code or think you may be due a refund, consider seeking professional help. Tax advisors like TaxAce LTD Accountants can assist you with understanding your tax obligations and ensuring you claim all the tax relief you’re entitled to. Contact TaxAce LTD Accountants today for a free consultation and peace of mind.

 

Contabila UK - Founder and CEO -TaxAce - Iurie Bivol

Iurie Bivol

Director TAXACE LTD

Entrepreneur and accountant with 15 years of experience in the UK.

Contabilitate UK - Senior Tax Assistant - Alina Costreie

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