UK Tax Codes Explained

UK Tax Codes Explained

The tax code that is displayed in your payslip is the code sent by HMRC (HM Revenue and Customs) to your employer to work out how much income tax that needs to be taken from your pay or pension.

UK Tax codes are made up of numbers and letters with the number representing how much income you can have before paying tax and letters referring to your situation and how it affects your tax-free Personal Allowance. The most common tax code for people born after 5 April 1938 is 1060L but this can change each tax year due to personal allowance increases.

Numbers in your Tax Code

The number represents the employer or pension provider how much tax-free income you will get in the tax year which is based on your personal allowance, the amount of income you can have before your tax. Using 1060L as an example, 1060 refers to the the tax-free personal allowance is £10,600 which is divided by 10.

Letters in your Tax Code

The letters in your tax code refers to your current situation.

0T

These means your Personal Allowance has been used up or if you’ve started a new employment and haven’t given them your P45.

BR

Basic Rate is when all your income from your job is taxed at 20%. This is normally used if you’ve got more than one job.

D0

Higher Rate is when all your income from your job is taxed at 40%. This is normally used if you’ve got more than one job.

D1

Additional Rate is when all your income from your job is taxed at 45%. This is normally used if you’ve got more than one job.

L

This is a common tax code which entitles you to a basic tax-free allowance

K

This means you have income that isn’t being taxed another way making it worth more than your tax-free allowance. This can happen if you’re paying tax you owe from a previous year or getting certain benefits.

M

Marriage Allowance means you receive a transfer of 10% of your partner’s Personal Allowance

N

Marriage Allowance means you’ve  transferred of 10% of your partner’s Personal Allowance

NT

You’re not paying any tax on income

T

Other calculations are included in your tax code to work out your Personal Allowance. This can be because your income is over the amount of basic rate tax

Y

If you were born before 6 April 1938 and are entitled to a bigger tax free allowance.

Emergency Tax Codes

Emergency tax codes are temporary codes that are based on what you pay in the current pay period rather than the whole year which may happen when starting a new job.

M1

Emergency tax if paid monthly.

W1

Emergency tax if paid weekly.

Having The Wrong Tax Code

If you don’t recognise your tax code or know that it has changed you should get in touch with HMRC to let them know your code is wrong. You can contact them via phone or through their website’s form.

At the end of the tax year (April 5th) you can check that you have paid the right amount of tax and claim a refund if you think you have paid too much.