Any other allowances shown here are likely to be self-explanatory and you will be aware if they are applicable to you.The other side of the form will be headed “Amounts Taken Away”. Most importantly, this section covers the benefits you receive from your employer. Car and fuel benefit calculations are shown in the Inland Revenue guide which accompanies the tax coding.The two sections are set against each other, which will produce a positive or a negative figure. If, for example, in 1997/98 a single person has benefits in kind of pounds 1,000 this will be deducted from the personal allowance of pounds 4,045 leaving allowances of pounds 3,045.The figures in the code will therefore be 304 (as in the first three numbers in pounds 3,045), which will then be followed by a letter (either L, H, P or V). Usually the letter is L, which means the single allowance only; H links to the married allowance, P to pensions.

Things start to get confusing with restrictions which hit the amounts taken away. The Revenue will restrict some of the allowances, such as married couple’s allowance, as relief is only given at 15 per cent. The restriction in your coding recovers excessive relief and is the difference between your top rate of tax and 15 per cent.The state pension is also included in this section. In addition, the Revenue is incorporating items of untaxed income, such as property income and untaxed interest, into this section.Putting all this together, and throwing in benefits from the employer, it can mean that the amounts taken away are bigger than the allowances. Going back to the earlier example, if benefits and restrictions amounted to pounds 6,000, that exceeds the personal allowance by pounds 1,955.This is dealt with by the K code system: the taxpayer would get a code of K194, from the first three figures of the negative amount reduced by 1.As noted earlier, many tax codes are wrong. The most frequent instances of a tax coding being incorrect come when there has been a change in your personal or financial circumstances – you’ve got married, you receive a company car (or give it up), you buy a new property and rent it out.These are the times when it is most important to check your coding notice, as the amount of tax deducted will be going wrong. This could be good or bad news; either way you should know about it.It is tempting to ignore an underpayment, but do bear in mind that the Revenue will catch up in due course.

As for an overpayment – as most people don’t complete a tax return at the end of the year, you might never get it back unless you look at your code.If you believe your notice of coding is wrong you should contact the issuing office The phone number is on the notice. A revised notice of coding will be sent to you and your employer.It is a surprisingly simple procedure and one that could save difficulties when the end of the year arrives and you realise that you forgot to include the Inland Revenue in the list of people to tell about your marriage.John Whiting is a tax partner at Price Waterhouse.. Abbey National, the former building society turned financial services giant, yesterday stunned the City with a takeover bid for Scottish Amicable, the Glasgow-based mutual life company. More than a million ScotAm policyholders will have to decide between the rival merits of two completely different proposals for the future direction of the company they own.
What is the background to the bid?We all know about building societies demutualising.In the past five years, too, a number of insurance companies have merged, including Royal Insurance and Sun Alliance. Norwich Union also plans to float.Competition and the need to rationalise have driven relatively inefficient firms together, while others are turning to the stock market to get funds to grow more quickly.So where does this leave mutual insurers’ policyholders?They own the firms they are members of and have policies with, as long as the products they bought are with-profits policies, typically mortgages or pensions.

This is because they have an interest in the underlying with- profits fund, built up over many years, from which their bonuses are paid. Therefore, when a mutual insurer is taken over, they are the ones to benefit.Where does Scottish Amicable come in?The firm is one of the UK’s largest mutually-owned insurers. It was founded in 1826 and has total funds under management of more than pounds 14bn. It has about 1.4 million policyholders, of whom more than 1 million invest in its with-profits fund.If it is so successful, why all the fuss?The problem for ScotAm is that it is not as successful as its glossy brochures would like us to believe. In the past few years its performance has slipped in the league tables of life companies The charts on this page give an idea. Once upon a time ScotAm was in the top five or six life offices in terms of its payouts to policyholders; in the past year or so it has fallen among the bottom performers.Why is this?Put simply, the company is in a cleft stick. It is forced by rules strictly enforced by one of its regulators, the Department of Trade and Industry, to set aside enough funds in non-speculative investments to meet policyholders’ reasonable expectations.

But at the same time, it cannot invest this in the equity markets, which could give it better returns. Other companies have a larger share of their funds in shares than ScotAm, enjoying better performance.So what is ScotAm doing about this?The company thought it had hit upon a clever wheeze. It announced two weeks ago that it was planning a two-stage de-mutualisation and flotation process, lasting three to five years. The deal is complicated, but involves an injection of pounds 350m from an outside firm, Swiss Re, to bolster the with- profits fund, ensuring better returns for policyholders.