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What is a Tax Code?
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If you pay income tax in the UK, or if you receive any wages under the PAYE (Pay As You Earn) system, you will be given a tax code. This is a combination of letters and numbers that informs employers and others how much tax should be deducted from your income.
To find out more about Tax Codes please follow the links below:
Finding Tax Codes and New Tax Codes
Understanding Tax Codes
Your tax code is printed on your P45, P46 or 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. You should always check that your tax code is correct, particularly if you complete a Self Assessment Tax return.
New tax codes are issued at the beginning of each tax year. You will receive notification from HMRC of your new tax code in each tax year. New tax codes are stated on a PAYE notice of coding form called a P2 and this details how your new tax code is made up. It is usual for new tax codes to change in each new tax year to reflect changes in personal allowances.
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.
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.
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 - If you are receiving the basic personal allowance and under 65
- 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. Applied most commonly for second forms of employment. The amount of tax deducted is currently at 20%
- Y - Applied for people over 75 who are entitled to a full personal allowance
- DO - Applied to income taxed at the higher rate of tax which is currently at 50% which changed from the 2010-2011 tax year
- 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.
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.
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.
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