HMRC Tax Code Explanation

Everything you need to know about HMRC tax codes

Chances are you have heard of them, after all, you see then on your wage slip every month. But do you have any idea what those secretive codes mean? We at DSR Tax Claims Ltd feel your pain and we want to share some of our expertise in tax matters with you. So sit comfortably and let us explain the mystery of HMRC tax codes to you. And if you have any questions when you get to the bottom of our guide, give one of our friendly team a call on 0330 122 9972 and we can help.

In simple matters, a tax code consists of a number which represents how much you can earn before tax – if you multiply that number by 10, you get your personal tax free allowance, that is how much you are allowed to earn before you have to pay any tax.

To work out this number, HMRC works out your personal tax allowance. Then they add up any income you haven’t paid tax on (such as untaxed interest on savings or earnings from a second job) as well as the value of any benefits you may get from your job (such as private medical insurance or a company car). They then take this away from your personal tax allowance and what is left is the amount that you are allowed to earn before you are taxed in the current tax year. Divide that by 10 and that is how you get the number.

And then there is the letter. That letter is used to inform your employer or pension provider or anyone else who might have an interest in your tax allowance of anything relevant in your personal circumstances.

Letters in your tax code

  • L – the basic tax-free allowance

  • M – you are married and 10% of your spouse’s personal allowance has been transferred to you.

  • N – you’re married and have transferred 10% of your personal allowance to your spouse

  • S – you’re using the rates of tax set in Scotland

  • Y – you were born before 6th April 1938 and therefore get a higher personal allowance

  • T – your personal allowance has been calculated using other calculations

  • 0T – your personal allowance has been used up, your new employer doesn’t have enough information about you to calculate your tax code or you don’t have a P45 form

  • BR – all of your income from this job or pension is taxed at the basic rate (maybe because this is your second job)

  • D0 – all of your income from this job or pension is taxed at the higher rate

  • D1 – all of your income from this job or pension is taxed at the additional rate

  • NT – you don’t pay any tax on this income

That takes care of most of the common tax code letters although there are some rare ones, like K for example, which means that you are paying additional tax relating to a previous year maybe because you are in arrears. W1, M1 and X are all temporary emergency tax codes, usually used because you have started a new job.

The most common tax code is 1250L – this means you have a tax free personal allowance of £12,500, which is the basic tax-free allowance.

We hope this has answered your tax code queries, but if you still have questions then give our friendly team at DSR Tax Claims a call on 0330 122 9972 and we will do our best to help.

This page was last updated on 09/04/2019.

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