What those letters and numbers on your tax code really mean – and how they could end up costing you money
At this time of year, HM Revenue and Customs (HMRC) dishes out tax codes to millions of Britons.
The code tells you how much income you can have without paying tax in the next tax year, which started on April 6.
With many changes to how much we pay, it is vital to check your code or you could end up hundreds of pounds out of pocket – or with a nasty tax bill.
Time to check: Problems with tax codes most often arise if you have several jobs, taken a second job or have changed employer during the year
It is a taxpayers’ responsibility to ensure their code is correct. If the mixture of numbers and letters are wrong, it could cause you to pay too much or too little tax.
Problems with tax codes most often arise if you have several jobs, a second job or have changed employer during the year.
Or soaring interest rates mean you earned more on your savings and might have to now pay tax on the interest.
The code is made up of several numbers followed by letters. To decipher it, you need to know what these numbers and letters mean.
If you put a ‘£’ sign in front of the number and a zero at the end, you’ll have the amount HMRC deems you can earn a year before you pay tax.
Most people in the UK are entitled to a personal allowance — the amount you can earn without being taxed — of £12,570. If you keep the full allowance, your code number will be 1257.
The number is followed by a letter. The most common is ‘L’ (an ‘S’ in Scotland), and means 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 you have used up your personal allowance with your job and pay basic rate (BR) tax on your entire pension.
Your rate: A tax code tells you how much income you can have without paying tax in the next tax year, which started on April 6
What 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 per cent 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 because of other income, taxable benefits from your employer or money owed to HMRC.
- M: Your spouse or civil partner has transferred £1,260 of their £12,570 personal allowance to you (Marriage Allowance), reducing your tax bill by £252.
- N: See above — the other way round.
- NT: You pay no tax on any of your income.
- 0T: All your income is taxed. You could 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 allowance — used for more complex tax affairs which HMRC reviews every year.
- W1, M1 or X: Emergency tax code. HMRC needs more information so contact it and get your code changed.
- You can find your tax code on your payslip, or via your personal tax account either online or on 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.
