If you are wondering ‘what does my Tax Code mean?’ you’re in the right place! This guide is designed to make understanding your tax code really, really easy. To use this guide, have your tax code in front of you and distinguish the number part, and the letter part.
The number part.
The numbers in your tax code will enable your employer/pension provider to correctly calculate your tax-free income for the year – this is based on your personal allowance (the amount you can earn before you need to pay tax – worked out by HMRC)
The HMRC will add together any income you haven’t paid tax on (part time earnings, untaxed interest etc) + the value of any company benefits (e.g car). This amount is deducted from your personal allowance. This amount is then divided by 10, and added to the letter part of your code..
Personal allowance – (untaxed income + company benefits) / 10 = Tax code number.
The letter part.
This part is based on your current situation, as this can affect your personal allowance.
L – This is the basic tax-free personal allowance (£10,600)
M – This code means you’ve received 10% personal allowance transfer from your parter, called a marriage allowance
N – Same as above, but this code means you’re the one transferring the 10% to your partner.
Y – You were born before 6th April 1938, and therefore can earn up to £10,660 before being taxed (up to £26,999p.a) Personal allowance is reduced £1 for every £2 of your adjustable net income.
T – You’ll see this if you income is £31,786 or higher, or if there have been other calulations to work out your personal allowance.
0T – Either you have a new job but don’t have your P45, or couldn’t give your new employer the details needed to issue a tax code. You’ll also see this is your personal allowance has been used up.
BR – You have multiple jobs/pensions, and this role is being taxed at the basic rate.
Do – You have multiple jobs/pensions, and this role is being taxed at the higher rate. higher rate.
D1 – You have multiple jobs/pensions, and this role is being taxed at the additional rate. additional rate
NT – This code means you’re not paying tax on this income.
K – This letter represents other income that wasn’t being taxed, such as previous wages or pensions, taxable state benefits (e.g state pension) , work benefits (e.g company car, health insurance). Your current employer will collect the tax due (but can’t take more than half of your pre-tax wages/pension!)
W1/M1 – This is an emergency tax code – and therefore you will only be taxed on payments recieved in this pay period as opposed to the whole year. You will recieve W1 if paid weekly, and M1 if paid monthly, and these appear at the end of your tax code.
My tax code has changed – why? Should my tax code change?
Tax codes can change if:
– You are given a company car as a taxable benefit
– You are reclaiming tax for company benefits
– You are recieving rental income that isn’t being taxed
– You are recieving taxable benefits, such as the state pension
– You need to pay tax due from previous wages or pensions
You will be temporarly assigned an emergency tax code when you begin a new job, however:
– HMRC should be notified by either yourself, your employer or your pension provider of your changed situation
– HMRC will calculate your new tax code and send this to your employer/pension provider
– Your employer/pension prover will calculate how much tax to deduct from your income.
– HMRC will inform you of the changed made via a PAYE coding notice.
If you think your tax code is wrong:
For further information please see gov.uk