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Do you know what your UK Tax Code means?

What is tax Code?

In the UK, a tax code helps the company, the organisation you work for, or the company giving you a pension figure out how much money they need to take from your pay or pension for taxes. The UK government will tell them which code to use.

Where can you find your tax code?

You would normally find your tax code on your payslip. You can also find it on a ‘Tax Code Notice’ letter from HM Revenue and Customs if they ever send you one.

What your tax code means

Your tax code usually has numbers and letters. Example 1257L. The numbers tell your employer or pension provider how much money you can get without having to pay tax on it during one year (the tax year). This amount is called Personal Allowance. The letters in your tax code tell your personal situation and how it changes the amount of money you’re allowed to keep before paying taxes.

Let’s play around 1257L, which is currently the most popular tax code. The L in this tax code means you’re allowed to keep the standard national money without having to pay taxes. It’s called a “Personal Allowance.” Now the questions I believe you are thinking about is ‘how much is this personal allowance?’ You can know your personal allowance by replacing letter ‘L’ with zero (0). Removing L from 1257L and adding zero (0) would become 12570. This means that your personal allowance is £12,570. This implies that you would not be required to pay tax if your annual income is less than or equal to £12,570.

Why is everyone’s tax code 1257L but mine is 1057L?

Using the same formula as demonstrated above, replace L with zero (0) in the tax code 1057L. Your tax-free or personal allowance would be £10,570. This implies that you would not be required to pay tax if your annual income is less than or equal to £10,570.

But why is everyone’s tax-free or personal allowance £12,570 but yours is £10570?

The difference between those two amounts may be tax you owe from the previous tax year. £12,570 – £10,570 = £2000. You should check with the HMRC if you owed any tax from the previous tax year. Or check if you received a letter informing you about tax you owe from the previous year. This tax owed would most likely be the difference between the regular tax code and your adjusted tax code. Your tax code can be less that 1257L depending on the amount of tax you owe that you need to pay back through your tax code. You can adjust your tax code by informing HMRC of any changes in your circumstances, such as a change in your income or employment status. This can be done by contacting HMRC directly or by speaking to your employer. Your tax code will then be updated, ensuring that you are paying the correct amount of tax.

Tax Code for a Second Job

If you have a second job, it is likely that you will have a separate tax code for that job. The tax code for your second job will depend on your total taxable income from both jobs, as well as your personal allowance. To ensure you are paying the correct amount of tax, it is important to inform HMRC of any changes in your circumstances, including the start of a new job.

Do all tax codes have numbers and letters?

Note that not all tax codes have numbers in them. Some of them are only letters, example BR and OT Below, you will find what the Letters in your tax code mean. The first five are the most common ones.

 

L means you get the regular amount of tax-free money or personal allowance.

OT means you’ve used up your tax-free money or your employer doesn’t have enough information to give you a tax code.

BR means that all the money you make from this job or pension will have the basic rate of tax applied to it. This is usually used when you have more than one job or pension.

D0 means that all the money you make from this job or pension will have a higher amount of tax taken out of it. This is usually used when you have more than one job or pension.

D1 means that all the money you make from this job or pension will have an extra high amount of tax taken out of it. This is usually used when you have more than one job or pension.

NT means you don’t have to pay any tax on that income M means you received 10% of your partner’s personal allowance.

N means you transferred 10% of your personal allowance to your partner.

T means there are extra calculations to figure out your tax-free money.

S mean you pay tax using the rates in Scotland.

C means you pay tax using the rates in Wales.

SOT means your that your personal allowance in Scotland has been used up, or you started a new job and your employer doesn’t have the information they need to give you a tax code.

SBR means all the income you made from this job or pension has been taxed using the Scotland basic rate. This happens when you have more than one job or pension.

SD0 means all the income you made from this job or pension has been taxed using the Scotland intermediate rate. This happens when you have more than one job or pension.

SD1 means all the income you made from this job or pension has been taxed using the Scotland higher rate. This happens when you have more than one job or pension.

SD2 means all the income you made from this job or pension has been taxed using the Scotland top rate. This happens when you have more than one job or pension.

COT means your that your personal allowance in Wales has been used up, or you started a new job and your employer doesn’t have the information they need to give you a tax code.

CBR means all the income you made from this job or pension has been taxed using the basic rate in Wales. This happens when you have more than one job or pension.

A tax code with a letter “K” at the beginning means you have some money that hasn’t been taxed yet and it’s more than the money you’re allowed to keep without paying taxes (tax-free or personal allowance). This usually happens if:

CD0 means all the income you made from this job or pension has been taxed using the higher rate in Wales. This happens when you have more than one job or pension.

CD1 means all the income you made from this job or pension has been taxed using the additional rate in Wales. This happens when you have more than one job or pension.

A tax code with a letter “K” at the beginning means you have some money that hasn’t been taxed yet and it’s more than the money you’re allowed to keep without paying taxes (tax-free or personal allowance). This usually happens if:

  • You owe taxes from a past year and they are being taken out of your pay or pension
  • You’re getting benefits that you have to pay taxes on, example government benefits or company benefits.

Your employer or the company giving you the pension will take the taxes that you owe from this extra money, even if a different company or organisation is giving you the money.
Your employer can’t take more than half of your pay or pension before taxes when using the “K” tax code.

The UK tax code can be complex, but understanding the meaning of your tax code, as well as the tax codes used in the UK, is essential to ensure you are paying the correct amount of tax.
By keeping informed and adjusting your tax code as necessary, you can avoid penalties and ensure that you are paying the right amount of tax.