If you are a salaried employee, it's important to fully understand your tax code. If it's incorrect then PAYE will not work as intended and you may well end up paying too little or too much tax. Whilst it may be great to have some extra cash in your pocket, it won't be as wonderful when HMRC send out a bill to get the additional tax repaid. Equally - you don't want to be working hard all month to then get less take-home pay than you were expecting and have to deal with a lengthy wait from HMRC to get your tax repaid.
Your tax code will normally be made up of letters and numbers.
Number
The number in the tax code indicates the amount of tax-free income you can receive in the tax year. This reflects allowances and deductions from allowances.
As an example - if you are entitled to the full personal allowance (£12,570) and have no deductions, your number on your tax code should be 1257.
If you are entitled to the full personal allowance (£12,570) but have a company car with a cash equivalent value of £6,000, your number on your tax code should be 657 (i.e. £12,570 less £6,000).
Letters
The following letters are found on tax codes:
Letter | Meaning |
L | You are entitled to the standard personal allowance |
M | You received the marriage allowance from your spouse or civil partner |
N | You have transferred the marriage allowance to your spouse or civil partner |
T | You tax code includes other calculations |
0T | Your personal allowance has been used up or you have started a new job and your new employer does not have the information they need to give you a tax code |
BR | All income from this job or pension is taxed at the basic rate, usually where you have more than one job |
D0 | All income from this job or pension is taxed at the higher rate, usually where you have more than one job |
D1 | All income from this job or pension is taxed at the additional rate, usually where you have more than one job |
There are other codes, such as K codes, which is where your deductions exceed allowances. This could be the case where your income is more than £125,140, so your personal allowance has therefore been removed.
There are also emergency codes - these end in W1, M1 or X. This is where your tax is calculated by reference only to your pay for that week or month, rather than looking at it over the year.
Checking
You can check your code via the HMRC app. If it doesn't appear correct then get in touch with HMRC as soon as possible or speak to us for more advice.
You can also use HMRC"s online tool to check your code - https://www.gov.uk/guidance/check-what-your-tax-code-means
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