The simple answer is yes. For many people whose only income is from an employment and who have tax deducted from their wages or salary under PAYE, the correct code should ensure that they pay the right amount of tax over a year.
Even for people with more complex tax affairs, including directors who are in the self-assessment system it's important that the correct tax is deducted from their employment or pension income to ensure that their one-off tax bill payable on 31st January each year is kept to the minimum.
Your annual Tax Code consists of the tax allowances to which you're entitled - normally the Personal Allowance, which for the 2016/17 tax year is £11,000. If you make personal pension contributions you may also have an estimated allowance for these included. Any untaxed income such as dividends, benefits from your employment (like a car or private medical insurance) are deducted to leave you with a net allowance figure which is converted into a Code, for example:
The net allowances have the final digit removed to leave 1200 and the suffix L applied to produce a code of 1200L. HMRC issue the Code Number to your employer to use against your wages or salary. Only you get to see how this Code Number is arrived at.
PAYE is normally operated on a cumulative basis. As the tax year progresses even if your salary fluctuates you will still have the correct amount of tax deducted.
If you change employment during a tax year, the P45 form given to you by your last employer will show your new employer what your code is and the pay and tax you have received in the year to date. The new employer will input this information into his payroll system and the correct tax deductions from your salary should continue seamlessly.
For individuals who have significant time gaps between employments, their new employer may not be able to use the P45 code and pay and tax information. In that case what is commonly called an 'emergency code' is applied. This is a non-cumulative code based on the Personal Allowance and serves to ensure standard tax deductions are taken on each payment date until a correct Tax Code is provided by HMRC. Use of a non-cumulative code normally means that there may be a tax under or overpayment for the year which often results in HMRC having to make an end of year calculation of the taxpayer's correct liability.
If you believe that your Tax Code is incorrect for any reason and you want to get it changed a simple call to HMRC on 0300 200 3311 should suffice to get it fixed. You will need your Unique Taxpayer Reference (UTR) and/or National Insurance Number. You will be asked some security questions to confirm your identity following which you just need to explain why the code is wrong and what you think it should be. If HMRC have made a mistake or you have some additional tax allowance to claim, they will make an amendment and send you a revised Notice of Tax Coding and advise your employer of the change that is required.