Tax Codes explained

RNV

Found below in news feed today, thought some may find useful…

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A tax code is a series of numbers and letters used by employers or pension providers to work out how much tax should be deducted from your pay or pension at source.

Anyone in employment or with a private pension will have one.

Making sense of the letters and numbers

The number shows the amount you can earn tax-free - although you need to add a zero to get the actual figure.

For example - the number 1257 means you can earn £12,570 a year tax-free.

The letters (which follow your tax code number) relate to your situation and how it alters your personal allowance.

For example, L means you are entitled to the tax-free personal allowance we outlined above. Therefore a tax code of 1257L (the most common tax code) means you are entitled to a personal allowance of £12,570 before any income tax is paid.

Here are what the other letters mean:

• T is similar to L in that if it follows numbers, you are entitled to that tax-free personal allowance. However, it also means HMRC will be taking a closer look at your tax affairs - usually the case if they are complicated;
• BR means you aren't entitled to any personal allowance (usually because it's a second job etc) and will pay a flat rate of 20% tax. This is the same for D0 but the rate is 40%, and D1 where the rate is 45%. SD2 is similar but only applicable in Scotland, where the top rate is 46%;
• K means your personal allowance has been eroded down to less than nothing, meaning the number after the K is actually a negative personal allowance;
• 0T means no personal allowance but you'll fall under the tax bands;
• NT simply means "no tax";
• M means your spouse or civil partner has transferred some of their personal allowance to you;
• N means you've transferred it to your spouse/civil partner;
• If you have an S or a C ahead of any of the other letters, that just means you're living in Scotland or Wales.

People can check their code quickly and easily online and update any details that may be affecting it.

Why would my tax code be wrong?

There are a number of reasons HMRC could have the wrong tax code for you, including:

• A change in job
• Having more than one source of income
• Retirement or having more than one pension
• Receiving employee benefits
• Starting your first job

How do I check my tax code?

You can check your tax code on your personal tax account online, or by looking at any payslip or via the HMRC app.

If you think it's wrong, you need to contact HMRC to tell them.

You can either phone 0300 200 3300, use their chat function or send them a letter.

Emergency codes

W1, M1 or X are usually found after a regular tax code (eg 1257L W1).

This usually only happens if there's a delay in HMRC receiving details about a change in your circumstances, for example if you've just started a new job.

eskbanker

The guide on the authoritative site is a bit more comprehensive, but broadly similar:

https://www.gov.uk/tax-codes/what-your-tax-code-means

Albermarle

A tax code is a series of numbers and letters used by employers or pension providers to work out how much tax they estimate should be deducted from your pay or pension at source, based on the info they have available, which may or may not be accurate.

Your actual true tax position/liability will not be known until after the tax year has ended. If the tax code was accurate then you should not owe/be owed anything. If it was not then you will have paid too much/too little tax.

badmemory

Missing is info re the K code. This code can only take 50% from the income it is set against. So have a liability of £600 & a taxable income of £1000, tax of £500 will be deducted, you will receive £500 & still owe HMRC £100.

This is becoming more frequent especially for pensioners on simple assessment that I think they are going to have to come up with a new one.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81862604#Comment_81862604

This is explained in the definitive version linked above, where the K code entry links to a dedicated explanatory gov.uk page:

Employers and pension providers cannot take more than half of your pre-tax wages or pension when using a K tax code.

https://www.gov.uk/tax-codes/k-in-your-tax-code

badmemory

But not mentioned in the first remarks here & is a common omission.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81862644#Comment_81862644

Yes, agreed - I was trying to direct people towards the definitive information rather than that copy/pasted from some other unattributed source!

chrisbur

https://forums.moneysavingexpert.com/discussion/comment/81862604#Comment_81862604

This rule for K codes was extended to all tax code in 2015.

molerat

Very sloppy and a bit misleading

If you have an S or a C ahead of any of the other letters, that just means you're living in Scotland or Wales.

It means a bit more than that.

So SD0 is 40% in Scotland ? - it is according to that simplistic statement

And it states the top rate in Scotland is SD2 at 46%, no mention of SD3 at 48%

badmemory

I do wish these "news feeds" would refer people to the HMRC rather than implying that what they have written is all there is.

On top of that is the persistent implication that all pensioners who only receive state pension are going to have to start filing self assessment once it goes over the personal allowance. I do have other income & they have told me that even if I file self assessment (I used to before simple assessment) they will ignore it.

LightFlare

my wife was put on an emergency tax code for her NHS pension which she took in June

will this get automatically adjusted/corrected at some stage or is it still worth contacting ?

Also - will any amount owing be automatically paid ?

By my reckoning it may be as much as £150 a month that she is overpayin