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Tax Codes - what are they?

1. Full time work 2. Part time work 3. Understanding payslips
4. National Insurance 5. P45 and P60 explained 6. Income tax
7. Tax codes - what are they? 8. Pension 9. Getting a job

7. What is a Tax code?

When you are employed you are given a tax code.  This is used by your employer to work out how much Income Tax should be taken from your pay.  Your employer gets your tax code from HM Revenue and Customs (HMRC) once they have received all your details.

There are two parts to your tax code: a number and a letter.  It will normally start with a number and end in a letter, for example 1185L, which is used for most people who have one job.

The number in your tax code informs your employer how much tax-free income you can earn in that tax year.  You can earn up £11,850 and not pay tax.  HMRC will work this out for you.  If you earn less than £11,850 but pay tax, then you will be able to get a tax rebate.

The letter on your tax code is about your situation and how it affects your Personal Allowance.  The letters you may find are as follows:


Tax Code Letter What it means
L You can have the standard tax-free Personal Allowance.
M Marriage Allowance: you have received a transfer of 10% of your partner's Personal Allowance.
N Marriage Allowance: you have transferred 10% of your Personal Allowance to your partner.
S Your income is being taxed by the rates in Scotland.
T Your tax code includes other calculations to work out what your Personal Allowance is.  For example, it has been reduced because you are estimated to have an annual income of more than £100,000.
0T

Your Personal Allowance has been used up, or that you have started a new job and your employer does not have the information they need to give you a tax code.

BR All of your income from this job is taxed at the basic rate (this is normally used if you have more than one job).
DO

All of your income from this job is being taxed at the higher rate (this is normally used if you have more than one job).

D1 All of your income from this job is being taxed at the additional rate (this is normally if you have got more than one job).
NT You are not paying any tax on this income.
K This means you have an income that isn’t being taxed another way and it is worth more than your tax-free allowance.  This happens when you are paying tax you owe from a previous year through your wages or you are getting benefits you need to pay tax on (state benefits or company benefits).


 

Letters after the number

If your tax code has W1 or M1 at the end, this means you have an emergency tax code.  Emergency tax will show on your payslip, like 1185 W1 or 1185 M1 or 1185 X.  This means you will pay tax on all your income above the basic Personal Allowance.  Most people are put onto emergency tax because:

  • They started a new job;
  • They started working for an employer after you have been self-employed;
  • They started to get company benefits or the State Pension

 

Update on your tax code

It is good to remember that emergency tax is only temporary and that it will get sorted once you have given your employer details of your previous income, which will be on your P45.

HMRC will update your tax code when:

  • Your income has changed;
  • You have more than one job;
  • You have stopped or started to get benefits from your job;
  • You receive taxable state benefits;
  • You are now claiming Marriage Allowance or expense that you get tax relief on

 

After your tax code changes

HMRC will change your tax code to make sure you pay the correct amount of tax throughout the year.  They will write or email to you once your tax code has been updated.

When your tax code has changed, HMRC will inform your employer and your new tax code will be shown on your next payslip, showing any adjustment to your tax payments.

 

Changes to situation

If you think your tax code could be wrong you can use the check your Income Tax service online to tell HMRC about any changes in your circumstances. 

If you are unable to use the online service, then you need to contact the HMRC.

REMEMBER: Your tax code is your responsibility and not your employer's.  So, if there is something wrong, then you need to contact them. 


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