What are Tax Codes?
Tax codes are the short hand way that HMRC communicate your tax position. They are written as a combination of letters and numbers that all have a particular meaning. It tells you, your employer and others how much tax you should be paying. This is very important if you pay income tax through the Pay As You Earn (PAYE) system as an employed taxpayer. Your employer works out how much tax should be deducted from your income using the information contained in your tax code.
On this page you will find information about:
Where do I find my Tax Code?
Your tax code is printed on your P45, P46, P60, and usually on your wage slip.
If you cannot find your tax code you can contact HMRC or you can refer to your PAYE notice of coding. A PAYE notice of coding is the letter HMRC send you at the beginning of each tax year to tell you what your tax code is.
You should always check that your tax code is correct, particularly if you complete a Self Assessment Tax return.
New Tax Codes
New tax codes are issued at the beginning of each tax year by HMRC.
You are sent a ‘P2 Notice of Coding’ form to tell inform you of your new tax code. Your tax code will usually change every year because the Personal Allowance amount is different every year.
The new tax code will be used unless your circumstances change. If your circumstances change it is common for a new PAYE notice of coding to be issued reflecting the change in your tax position for example if you have claimed job related expenses.
What does my tax code mean?
Every letter or number in the tax code represents a piece of information about your tax status.
For example, any tax code ending in the letter L refers to your tax-free Personal Allowance. In this case the number at the start (multiplied by 10) shows how much you can earn annually before tax. However, if you are over state pension age, you may receive a different tax code to indicate your Personal Allowance.
Any tax code including the letter K indicates that your untaxed income is greater than your Personal Allowance, which means you need to pay tax on the excess. This typically applies if you have received certain state or company benefits as well as earnings, or if you have an outstanding tax payment due from previous years.
Different Tax Codes
There are many different tax codes, and your tax code can change during the tax year depending on your circumstances.
Please find below a list of common tax code letters and their significance:
- L – you receive the full Personal Allowance amount.
- K – Applied most commonly to people with company benefits i.e. a company car benefit where your allowances are less than total deductions.
- BR – Stands for basic rate. All of the income from this pension or job is taxed at the basic rate of 20%.
- Y – Applied for people over 75 who are entitled to a full personal allowance
- DO – All the income you get from this job or pension is taxed at the higher rate of 40%.
- NT – Stands for non-taxable and is applied to income which is not taxed.
If the numbers in your tax code increase you will generally pay less tax and if the numbers in your tax code decrease you will pay more tax.
More than one job?
If you have two or more sources of income you may be given more than one tax code.
This may be because you have more than one job, or because you are receiving a pension while you are earning. In these circumstances it is particularly important to make sure you have been given the correct tax codes, or you may end up paying too much tax or not enough tax.
Emergency Tax Codes
In some circumstances, such as if you change jobs and do not have a P45, you may be placed on an Emergency Tax Code.
This means tax will be deducted at 20% of your income until the correct tax code is worked out. If you have overpaid tax while on an Emergency Tax Code you will usually be able to receive this back in your salary in the same tax year, providing your tax code is changed in time. If your tax code is not changed on time you can still reclaim any overpayment of tax for the previous four tax years.
For further Tax information, please follow the links below:
Income Tax includes:
What is income tax?
How is Income Tax calculated?
How much income tax do I need to pay?
Income Tax Allowances
Income Tax Rates and Taxable Bands
How do I pay income tax?
Emergency Tax Codes includes:
What is an Emergency Tax Code?
What does an emergency Tax Code look like?
Why do I have a BR/ Emergency Tax Code?
Can I get a Tax Refund if I have paid Emergency Tax?
Construction Industry Scheme includes:
CIS For Subcontractors
CIS For Contractors (Employers)
VAT (Value Added Tax) includes:
What is VAT?
When do I pay VAT?
How much VAT do I need to pay?
Do I need to register for VAT?
How do I pay VAT?
Can I claim VAT back?
Self Assessment includes:
What is Self Assessment?
Do I need to complete a Self Assessment tax return?
How do I get a Self Assessment tax return form?
How do I register for Self Assessment?
Can I register for Self Assessment on behalf of a company or trust?
What is a Unique Tax Reference number (UTR)?
How do I get a Unique Tax Reference (UTR) number?
How do I complete my Self Assessment tax return online?
Can I complete my Self Assessment tax return on paper?
Self Assessment Tax return deadlines
What if I submit my tax return late?
What if I submit my tax return incorrectly?
How is my tax calculated?
Do I need to check my tax calculation?
National Insurance includes:
What is National Insurance?
What are the different types of National Insurance?
Who pays National Insurance?
What is National Insurance used for?
Do your National Insurance payments affect your Pension and Benefits?
How much National Insurance should I pay?
Pension Tax includes:
Do I have to pay tax on my pension?
Do I have to pay tax on my state pension?
Corporation Tax includes:
Who needs to pay Corporation Tax?
How much Corporation Tax do I need to pay?
How do I pay Corporation Tax?
Inheritance Tax includes:
What is Inheritance Tax?
Capital Gains Tax includes:
What is Capital Gains Tax?