What those letters and numbers on your tax code really mean – and how they can end up costing you money
At this time of year, HM Revenue and Customs (HMRC) distributes tax codes to millions of Britons.
The code tells you how much income you can have without paying taxes in the next tax year, which began April 6.
With many changes to how much we pay, it’s vital to check your code or you could end up with hundreds of dollars out of pocket – or with a nasty tax bill.
Time to check: Tax code issues are most common if you hold multiple jobs during the year, took on a second job, or changed employers
It is the taxpayer’s responsibility to ensure that their code is correct. If the combination of numbers and letters is incorrect, you may be paying too much or too little tax.
Tax code issues usually arise if you hold multiple jobs during the year, have a second job, or have changed employers.
Or because of the rising interest rates, you have earned more with your savings and you may now have to pay tax on the interest.
The code consists of a number of numbers followed by letters. To decipher it, you need to know what these numbers and letters mean.
Putting a ‘£’ sign before the number and a zero at the end will give you the amount HMRC believes you can earn a year before you pay taxes.
Most people in the UK are entitled to a personal allowance — the amount you can earn without paying tax — of £12,570. If you keep the full surcharge, your code number will be 1257.
The number is followed by a letter. The most common is ‘L’ (an ‘S’ in Scotland), meaning you are entitled to the personal allowance and no more.
If you work and have a pension, you may have a normal code on your job and a BR code on your pension.
This means that you have used up your personal allowance with your job and you pay basic rate tax (BR) on your entire pension.
Your rate: A tax code tells you how much income you can have without paying taxes in the next tax year, which started April 6
What do the letters mean…
- BR: You have a second job or pension which is all taxed at 20 per cent in England and Wales and 19-21 per cent in Scotland.
- C: You pay the rate of income tax in Wales.
- D0: Income from this source is taxed at the higher rate: 40 per cent in England and Wales; 42 percent in Scotland. Usually used if you have more than one job or pension.
- D1: Income is taxed at the additional rate of 45 per cent – or 47 per cent in Scotland.
- L: You are entitled to the personal tax-free allowance of £12,570 and no more.
- K: You have a negative amount of personal allowance, possibly due to other income, taxable benefits from your employer or monetary debts to HMRC.
- M: Your spouse or civil partner has transferred £1,260 of their personal allowance of £12,570 to you (Marriage Allowance), reducing your tax bill by £252.
- N: See above – vice versa.
- NT: You do not pay tax on your income.
- 0T: All your income is taxed. You can get this if you have changed jobs and have not had a P45 showing how much tax you have paid so far this year.
- S: Your income or pension is taxed at the Scottish rate.
- T: Your tax code requires other calculations to work out your current personal deduction – used for more complex tax matters that HMRC reviews each year.
- W1, M1 or X: Emergency tax code. HMRC needs more information so please contact it and have your code changed.
- You can find your tax code on your payslip or through your personal tax account, online or in the HMRC app. You can correct details at gov.uk/personal-tax-account, or call 0300 200 3300. Or write to Pay As You Earn and Self Assessment, HM Revenue & Customs, BX9 1AS.
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