What is the M1 Tax Code? Why You’re on it & How to Change It Quickly

A payday is one of the most exciting moments of an employee’s month, right? Well, there are some taxes that are applied to your income, and all taxes have their own codes that are visible on your payslips. M1 tax code is one of them. So, read this article to understand what is emergency tax and its impact on your take-home income.

What Does an M1 Tax Code Mean?

The M1 tax code is referred to by HMRC as an “emergency” or “non-cumulative” tax code. Unlike standard tax codes, the M1 code is a temporary code used by HMRC when they have insufficient information about your income. Well, it applies to employees on monthly wages and when a new job starts without a P45. As the name of the tax shows, M1 is for Month 1.

When you are on the M1 tax code, the amount of income tax you pay is dependent on the earnings you receive during the specific pay period. In addition, the employer or the pension scheme will only take into account the amount of earnings you have received in that tax year. It also does not take into account any unused tax-free Personal Allowance from earlier pay periods.

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How the M1 Tax Code Affects Your Pay?

• Non-Cumulative Effect

The key feature of an M1 tax code is the non-cumulative effect. Normally, with cumulative tax codes, even if you earn less in a month, you accumulate unused Personal Allowance to reduce the taxes deducted later on. That is not the case under the M1 code.

Consequently, you may end up paying more tax than you should, especially if your income is subject to change. For example, if you are paid weekly and earn nothing in one particular week, you cannot carry forward the unused allowance to reduce tax in the following week.

• Comparison with Standard Tax Codes

Suppose we are given the standard cumulative 1257L code as opposed to 1257M1:

With 1257L, if in one month you earn £1,500, in another month £2,500, your total will be worked out on £4,000 over two months, all of which is tax-free up to:

 £2,095 (£12,570 ÷ 12 × 2)

On the other hand, with 1257M1, each month is treated as a separate unit. This implies that you get £1,047.50 tax-free per month (£12,570 divided by 12), irrespective of past months. In effect, this could mean overpaying on your taxes.

In line with PAYE rules, emergency tax codes are only interim measures and should be corrected once sufficient information is available.

How Do I Fix My M1 Tax Code?

Fixing the M1 tax code is easy if you follow the process mentioned below:

Step 1: Check Your Tax Code Notice

First, check to see if you have received a tax code notice from HMRC. This is usually known as a “PAYE Coding Notice” and will outline why you have this code and on what it is based. It also helps you understand, upon reviewing this notice, whether the M1 tax code is due to the missing information or due to any other specific reason that must be addressed.

Step 2: Contact HMRC Directly

The most effective way to resolve an incorrect M1 tax code is by contacting HMRC’s Income Tax helpline. Their advisors can review your circumstances and, where appropriate, issue a corrected code. Before calling, get all the essential information like your National Insurance number, details of all your employment or pensions, and recent P45 or P60 documents. Preparing these significantly streamlines the process.

Step 3: Furnish Missing Documentation

If your M1 tax code was issued because you started a new job without a P45, this is something that your employer should provide. The employer may ask questions about your last employment in the current year and other details.

Step 4: Benefit From Your Personal Tax Account

Alternatively, you can check and update your employment details through the GOV.UK website using your Personal Tax Account. You can see your tax code online and inform HMRC about changes in your employment status, such as new jobs, ceasing employment, or company benefits received. HMRC require this information to issue the correct code quickly.

Step 5: Follow-Up with the Employer

Once HMRC has issued a standard tax code, they contact your employer or pension provider directly. However, you must check your next payslip to ensure it has been applied. If you know HMRC has confirmed a change, but the M1 tax code remains in place, you should discuss this with your payroll department. Sometimes this is just an administrative oversight or a delay in changing systems. But it’s very rare.

How Long Do You Stay on the M1 Tax Code?

The good news is that the M1 tax code is temporary and will be corrected once HMRC receives the necessary information about your employment. In most cases, the M1 code is not applied for longer than two months. The time depends on the rate of flow of information between the three entities: you, your employer, and HMRC.

Several factors determine how long you stay on the M1 tax code:

• Information Submission: In compliance with HMRC, if you provide your P45 or correctly fill out the starter checklist, you receive a correct code from HMRC within weeks. The information submission affects the duration spent on the emergency code.
• HMRC Processing Times: Busy periods, like the beginning of the tax year in April or before self-assessment deadlines, make processing times longer. However, they aim to settle the majority of tax code inquiries within their service standards.
• Complexity of Your Tax Affairs: If you have multiple employments, receive different benefits, or have other complexities, it may take longer to identify the right tax code. This is because HMRC make sure that all aspects are taken into account before finally assigning the tax code.

What Happens If You Stay on M1 Too Long?

If you stay on an M1 tax code for more than two months, you’re probably overpaying tax. HMRC eventually sort out your account, and this is often done at the end of the tax year, or once the correct tax code is applied. If this is the case, you get any overpaid tax back as a refund. The sooner you fix your M1 tax code, the sooner your take-home pay reflects your true taxes.

How To Prevent an M1 Tax Code?

There are a few tips to prevent an M1 tax code, which are as follows:

• Keeping HMRC Updated

As mentioned above, the best way to prevent this is to make sure you have the updated details with the HMRC. If you change your job, you have to inform them immediately. Do not rely solely on your employer to inform HMRC. Likewise, if you begin to draw a pension while also working, or have a second job, you must notify HMRC as soon as possible. This reduces the risk of getting emergency codes applied to your income.

• Retain Important Documents

Always keep your P45 when leaving your employment and give it to your new employer. This document alone contains vital information that prevents emergency tax codes. Moreover, keep all your P60S and any codes you get in the post.

• Check Tax Codes Regularly

You must review your tax code once a year, preferably every April, as the tax year starts. The tax code can be found on your payslips or on your Personal Tax Account. By being proactive, you can notice the M1 tax code, or any other codes if any applied.

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Do You Get Emergency Tax Back?

Yes, you can get an emergency tax back. If you have overpaid tax when you were on an emergency code, you can receive a refund once your correct tax credits and rate bands are applied. It is often automatically included in your next paycheck or upon filing an annual tax return once HMRC has updated your tax codes.

The Bottom Line

The importance of understanding the M1 tax code cannot be overstated and overruled if you manage your finances efficiently. Remember, an M1 tax code is non-cumulative, meaning each tax period is treated independently. Thus, the moment you notice this tax code on your payslip, take necessary actions.

By staying informed, you can help ensure you are paying the right tax and the right amount, helping you get the most from your salary. If you need an expert accountant’s advice, contact us now and get all your M1 tax code queries resolved.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.