What is a tax code and what does yours mean?
What are tax codes?
A Tax Code is a series of letters and numbers used by HMRC to calculate the amount of Income Tax that should be deducted from your salary or pension. The code is calculated based on your Personal Allowance, which is the amount of income you can earn before you start paying Income Tax. Your Tax Code is then used to determine how much tax an you must pay in the tax year.
What is the most common tax code?
What do tax codes mean?
Each Tax Code is made up of a combination of numbers and letters that have a specific meaning.
1. The numbers indicate how much tax-free income you are entitled to in a tax year.
2. The letters in the code reflect your personal situation and how it affects your Personal Allowance.
Below is a list of letters you can see in a tax code and what they mean:
- L - You are entitled to the standard Personal Allowance. This is £12,570 for the 2023/24 tax year.
- M - You claim Marriage Allowance and you receive a transfer of up to 10% of your spouse's Personal Allowance.
- N - You claim Marriage Allowance and have transferred up to 10% of you Personal Allowance to your spouse.
- T - There are some other factors that affects the calculation of your Personal Allowance.
- 0T - You have used all your Personal Allowance or your employer at a new job doesn't have all the information required to give you the correct tax code.
- BR - All the income you receive from this pension or job will be taxed at the basic rate. This is 20% for the 2023/24 tax year.
- D0 - All the income you receive from this pension or job will be taxed at the higher rate. This is 40% for the 2023/24 tax year.
- D1 - All the income you receive from this pension or job will be taxed at the Additional Rate. This is 45% for the 2023/24 tax year.
- NT - You are not currently paying Income Tax on this income.
- S - Your income or pension is taxed using Scottish rates.
- C - Your income or pension is taxed using Welsh rates.
A tax code can contain multiple of these letters.
If a tax code has a K at the start, your income hasn't been taxed but it is more than your tax-free allowance. This applies to individuals who are paying back taxes owed from a previous year, and those that receive benefits that must be taxed.
What is an emergency tax code?
If a tax code has M1, W1, or X at the end, it is called an emergency tax code. You will receive an emergency tax code if HMRC is not informed of new income details after a change in job, starting work for an employer after being self-employed, or getting company benefits or the State Pension.
If you have an emergency tax code, it temporarily forces you to pay tax on all your income above your personal allowance.
What are some examples of tax codes?
1250L was the most common tax code in the UK for 2020/21 tax year. The tax code 1257L has replaced this though as the standard Personal Allowance has increased from £12,500 to £12,570.
It is possible to have a different Personal Allowance to the standard one. For example, 1254L or 1283L could be possible tax codes for people with a different personal allowance.
Either 1257 X, 1257 W1, or 1257 M1 is applicable for people that receive the standard allowance but are currently charged tax at an emergency tax rate. These codes are called emergency tax codes. You are given an emergency tax code when HMRC do not have all the information on your income and how much tax you should pay. An emergency tax code means that you have to pay tax on all your income above your Personal Allowance till you have got your correct tax code.
My tax code is 1257L. What does that mean?
The tax code 1257L is the most popular tax code in the UK. It applies to individuals that have one job or pension and that get a personal allowance of £12,570 for the 2023/24 tax year.
What do I do if I have lost my tax code?
If you lose your tax code, you can always find it on your Payslip, P45, or P60. If you don't have any of these documents, you can contact HMRC directly to request your tax code. You will need to provide your National Insurance number and some other personal information to confirm your identity.
What do I do if I think my tax code is wrong?
If you think your tax code is wrong and you are overpaying or underpaying tax, you can contact HMRC. You will need to pay any tax owed if you have underpaid, or you can reclaim any overpayment that you have made. It is important to keep HMRC informed about anything that might change your tax obligations. This includes things like a change in job, receiving Benefits in kind, or other income from Self-employment for example.