Let us take the stress out of Self Assessment
Get your tax return sorted by experts for only £200 £100+VAT!
Take the stress out of Sole Trader Accounting, for just 1%+VAT of your money earned. No monthly subscriptions! With CrunchONE
Get 25% Off Crunch Pro and Premium for the first 3 months!

Save your seat! Live e-commerce webinar

Register and soak in the wisdom from top industry leader! June 27, 2024 1:30 PM

What is the OT Tax Code? HMRC’s Tax Alarm Explained

image of man calculating tax
Picture of crunch software on mobile

Professional Bio Templates & Examples

Create a compelling professional narrative for a proper, attention-grabbing introduction.
Website bios
Speaker intros
Professional Profile

Welcome to the mystifying world of tax codes! These are the secret language of your payslip, that tells HMRC how much tax to take from your hard-earned money. 

And one such enigmatic character in this lineup is the '0T' tax code – a bit of a wildcard, you might say.

So, what's the deal with the 0T tax code? 

It's the tax world's version of a 'placeholder', stepping in during those times when HMRC doesn't quite have all the pieces of your income puzzle. 

It’s like showing up at a party where the host doesn't know your dietary preferences, so they play it safe – in this case, HMRC plays it safe by not applying your usual tax-free personal allowance. 

This code is often a temporary guest in your tax affairs, particularly in scenarios like starting a new job or after a significant change in income. 

Let's dive into this a bit more and see how it affects you, shall we?

Why do I have an OT tax code?

The 0T tax code often pops up at the most unexpected times. This code is like a temporary band-aid, used by HMRC when they're a bit in the dark about your income details. It's their way of saying, 'Hold on, we need to figure this out.' 

  • Commonly, this tax code is applied in scenarios like switching jobs, where your new employer might not have all your financial history yet. 
  • Or, it could be a result of some missing information on your earnings. 
  • If you're on an OT tax code and only have a single source of income under PAYE, it's probable that this tax code isn't accurate, as it doesn't include any tax-free personal allowance.

But don't worry, it's not a permanent fixture. The 0T code is just a temporary guest in your tax journey, stepping in until HMRC can gather all the right info and update your tax code. 

{{pt-self-assessment}}

How much tax will I pay on an 0T tax code?

When you're on an 0T tax code, it's a bit like your personal allowance has decided to take a holiday – without you. 

Usually, you'd get a nice chunk of income (£12,570 for 2023-24) that's free from tax. But under 0T, every penny you earn starts waving hello to the taxman.

Here's the lowdown: If you're a basic rate taxpayer earning, say, £25,000 annually, usually you'd only be taxed on £12,430 (that's after your personal allowance). But with 0T, your entire £25,000 gets taxed. It's a bit like going from paying tax on a smaller slice of your income cake to the whole cake itself.

And for those in the higher tax brackets? Brace yourselves. If you're earning above £50,270, normally only the amount over your personal allowance and basic rate band gets taxed at the higher rate. 

With 0T, it's like the tax floodgates have opened – you're taxed right from the first pound, and more of your income could be taxed at that higher rate.

But remember, it's just a temporary hiccup while HMRC tunes your tax code to your actual financial symphony.

OT tax code vs BR tax code

Think of tax codes as different flavours of ice cream. Some are straightforward, while others have a bit of a twist. 

In our tax code flavour spectrum, let's compare two interesting varieties: 0T and BR.

  • The 0T tax code is the code where your personal allowance is on a break, so you're taxed on your entire income.
  • BR stands for Basic Rate, and it's a bit more straightforward. It taxes all your income at the basic rate of 20% – no personal allowance, no fuss. It's typically used for additional sources of income, like a second job or a pension, where your personal allowance is already used up elsewhere.

So, what's the main difference? While both tax codes skip the personal allowance, the BR code keeps things simple at a flat 20%. The 0T, on the other hand, is more like a wildcard – it can apply different tax rates (basic, higher, or additional) depending on your income level. 

It's a bit more unpredictable and can lead to higher tax rates if you're a higher earner.

While both 0T and BR mean your personal allowance is out of the picture, 0T is the chameleon of the tax world, changing its colours based on your earnings, whereas BR is more like your reliable, one-flavour-fits-all option.

Will I get a tax rebate after being on an OT tax code?

So you’ve been on the 0T tax code and now you're wondering if there's a little tax treat waiting for you in the form of a rebate. Well, the answer is a hopeful 'maybe'!

The 0T tax code is like an overly cautious friend – it makes sure HMRC doesn’t miss out on any tax while they're figuring out your correct tax code. 

But sometimes, this means you might’ve paid more tax than you needed to. And who doesn’t like getting their own back, especially when it's tax?

Here's the good news: if you’ve overpaid tax under the 0T code, HMRC is usually good at catching this and will refund you automatically. 

This is often sorted out once they have all your correct income details and can put you on the right tax code. Think of it as a tax system boomerang – what goes around comes around.

But, it's always wise to keep an eye on your payslips and tax calculations. If you suspect you've overpaid and haven't received a rebate, you can always nudge HMRC or apply for a tax rebate yourself. 

Remember, a tax rebate is not a guarantee, but it's a possibility worth exploring if you've been on the 0T code. 

I am on an OT tax code, how do I change it?

It's simpler than you might think. The key is to give HMRC the full picture of your income.

Start by checking your payslips and P45 or P60 forms – these documents are like the breadcrumbs leading back to your correct tax code. If you've started a new job, ensure your employer has all your latest tax information. Sometimes, just updating your employer with your correct details does the trick.

If things still aren’t adding up, get in touch with HMRC directly. They can help recalibrate your tax code. You can contact them online, by phone, or  post. 

Remember to have your National Insurance number and details about your income and employment handy.

Decoding the 0T

In the strange and obscure world of tax codes the 0T is a loud signal that’s turned on when HMRC needs more clarity on your income. 

While it might mean higher taxes in the short term, understanding its role and knowing how to navigate back to your correct tax code can smooth out your financial journey. 

Remember, tax codes are not set in stone; they're more like signposts, guiding you towards fair and accurate taxation.

Save your seat! Live e-commerce webinar

Register and soak in the wisdom from top industry leader! June 27, 2024 1:30 PM
Dive into e-commerce basics
Expert industry insights
Practical tips and savvy tricks

Speak to an accounting expert

If you're unsure what level of support you need, our friendly team are on hand to help you pick the right package for you.
Self Assessment tax returns done for you, from just £200 £100+VAT
Take the stress out of Sole Trader Accounting, for just 1%+VAT of your money earned. No monthly subscriptions! With CrunchONE
Get 25% Off Crunch Pro and Premium for the first 3 months!
Share this post
James Waller
Content Specialist
Updated on
December 4, 2023

Knowledge Hubs

Take control of your accounts, today

Crunch’s effective software package includes being able to talk to an expert client manager and a Chartered Certified Accountant. You can count on Crunch to make you productive and profitable.
Picture of crunch software on mobile

Professional Bio Templates & Examples

Create a compelling professional narrative for a proper, attention-grabbing introduction.
Website bios
Speaker intros
Professional Profile

Unlock Your Free Limited Company Expense Guide!

Expert Insights
Actionable Tips
Strategic Advice

Save your seat! Live e-commerce webinar

Register and soak in the wisdom from top industry leader! June 27, 2024 1:30 PM
Dive into e-commerce basics
Expert industry insights
Practical tips and savvy tricks
Pro Tip
Boost your business finances with our Ltd Company packages!

Award-winning software with support from expert accountants

Pro Tip
Take the stress out of Sole Trader Accounting

Just 1%+VAT of your money earned. No monthly subscriptions! With CrunchONE

Pro Tip
Get 50% off your Self Assessment

Get your tax return sorted by experts for only £100+VAT!

Pro Tip
Using cloud-based accountancy software to manage your finances gives any small business a big advantage!

At Crunch we provide affordable cutting-edge, easy-to-use software with real human support from expert chartered accountants. That’s probably why 81% of our clients would recommend Crunch.

Pro Tip
Did you know - you have access to a Chartered Certified accountant for free on our paid subscriptions?

Book a call with our one accountants and get your questions answered. Just £25.50 +VAT for Crunch Free users.

Pro Tip
Get 50% off your Tax Return!

Crunch’s Self Assessment service provides an expert accountant to complete, check, and file your Self Assessment for you for just £100 +VAT.

Pro Tip
Did you know - We have a free plan that is great for sole traders and limited companies?

Why not see for yourself? It’s simple and easy to use and 100% free.