Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.
What are tax codes?
Tax codes are used as a way for HMRC to tell your employer or pension provider how much tax to deduct from your wages or pension.
They usually start with a number and end with a letter. The most common tax code is ‘1250L’ – this is used by most people who have one job or pension and are entitled to the standard Personal Allowance amount.
The numbers tell your employer or pension provider how much tax-free Personal Allowance you have each tax year. It is calculated by taking your Personal Allowance (the standard tax-free Personal Allowance is currently £12,500 per tax year). HMRC then adds up all the income you haven’t paid tax on – this could be untaxed interest or earnings you get from another job – as well as the value of any taxable benefits you receive from your employer. HMRC then deduct this from your Personal Allowance to leave how much tax -free income you are entitled to in a tax year. Finally, the last digit is removed – so in the above example, 1250L, the full Personal Allowance of £12,500 becomes 1250.
The letter at the end of your tax code refers to your situation and how it might affect your Personal Allowance.
The letters are as follows:
|Letter||What it means|
|L||You are entitled to the standard tax-free Personal Allowance|
|M||You are claiming Marriage Allowance, so you are receiving 10% of your partner’s Personal Allowance in addition to your own Personal Allowance|
|N||You are claiming Marriage Allowance and have transferred 10% of your Personal Allowance to your partner|
|S||You live in Scotland and your salary or pension is being taxed using Scottish Income Tax rates|
|T||Your tax code includes other calculations to work out your Personal Allowance, for example, you earn more than £100,000 so your Personal Allowance has been reduced|
|0T||You have used up your Personal Allowance or you have started a new job and your employer doesn’t know your financial details so they can’t give you a tax code yet|
|BR||All your income from your job or pension is to be taxed at the Basic Rate – used mainly because you have more than one job or pension|
|D0||All your income from your job or pension is to be taxed at the Higher Rate – used mainly because you have more than one job or pension|
|D1||All your income from your job or pension is to be taxed at the Additional Rate – used mainly because you have more than one job or pension|
|NT||You don’t have to pay any tax on this income|
|W1/ M1||These are emergency tax codes|
In addition, if your tax code begins with a ‘K’, you have other income which isn’t being taxed in any other way and it is more than your tax-free Personal Allowance. This could be because you still owe tax from a previous tax year or you are getting taxable benefits which you need to pay tax on – these could be state benefits or benefits from your employer. Your employer or pension provider deducts the tax you owe from this other untaxed income even if it comes from another company or organisation in the first place.
If you have a K code tax code, your employer or pension provider isn’t allowed to take more than half of your pre-tax wages or pension.
What are emergency tax codes?
There are a number of reasons why you might find yourself with an emergency tax code. Maybe you have started a new job, or you are working for an employer after being self-employed. You might also be receiving company benefits or the State Pension. Emergency tax codes mean that you are paying tax on all your income which is above the basic Personal Allowance.
Emergency tax codes will show on your payslip as:
- 1250 M1
- 1250 W1
- 1250 X
These emergency tax codes are only meant to be temporary while HMRC sends your employer the right information and tax code to tax you correctly.
How can you update your tax code if you have an emergency tax code?
If you are on an emergency tax code, it is only a temporary measure while your employer and HMRC find out the correct details to tax you correctly. Once HMRC is given details of your previous income or pension, they will automatically update your tax code.
If you have a P45, your employer can get these details from that. If you don’t have a P45 for some reason, your employer will need to ask you for further information.
There are a number of other reasons why your tax code might be updated by HMRC:
- Your income has changed
- You have started to receive taxable benefits from your employer – or you have stopped receiving them
- You get taxable state benefits
- You are claiming Marriage Allowance
- You have expenses which you can claim tax relief on
- You have started to get additional income from another job or pension.
Once your tax code has been updated by HMRC, you will then pay the correct amount of tax over the tax year. HMRC will write to you or email you to let you know your tax code has been updated. They will also inform your employer or pension provider. This means that your next payslip will show your new tax code and any adjustments to your pay if you have been paying the wrong amount of tax.
How can you check that your tax code is correct?
If you’re not sure what your tax code is, you can check it online through the HMRC website. You can check what your tax code is, how your tax code has been worked out and how much tax you are likely to pay as a result.
If there have been any changes that you think may affect your tax code, you need to tell HMRC. You can either do this online or you can call them on 0300 200 3300 (textphone 0300 200 3319).
How can DSR Tax Claims help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 10/04/2019.