When you glance at your payslip, your eyes probably go straight to your take-home pay. But there’s a small combination of letters and numbers that holds a lot more significance than you might think your tax code.
Your tax code determines how much Income Tax you pay, and getting it wrong could cost you. Here’s what you need to know about tax codes in the UK, what the different letters and numbers mean, and how to check if yours is accurate.
What is a Tax Code?
A tax code is issued by HMRC and used by your employer or pension provider to determine how much tax should be deducted from your income. It’s based on your personal allowance (the amount you can earn tax-free each year), any benefits you receive, and whether you’re paying off tax from a previous year.
Your tax code can change depending on your circumstances so it’s worth paying attention to it.
Why It Matters
An incorrect tax code can mean you’re either paying too much tax or too little. If you’re overpaying, you’re entitled to a refund. If you’re underpaying, you might owe HMRC money even if it’s not your fault. Keeping your tax code accurate is key to avoiding unexpected bills or delays in repayments.
Decoding the Numbers and Letters
Tax codes usually contain a number followed by a letter. Here’s what they mean:
Tax codes ending in L
This is the most common tax code. It means you’re entitled to the standard personal allowance. For most people, that’s £12,570 per year. Your tax code will typically be 1257L.
Tax codes ending in M or N
These relate to the Marriage Allowance. If you’re married or in a civil partnership, one partner can transfer part of their personal allowance to the other. The partner receiving the allowance will have an M at the end of their code, while the one giving it up will have an N.
Codes like BR, D0, or D1
These are used when you have more than one source of income, such as a second job or a pension. If your main income already uses up your personal allowance, your second income is taxed in full.
- BR means the second income is taxed at 20% (basic rate)
- D0 means it’s taxed at 40% (higher rate)
- D1 applies to the 45% (additional rate)
Tax codes starting with K
This means you’re receiving taxable benefits or repaying underpaid tax from a previous year and the amount owed exceeds your personal allowance. These codes are more complex, and your tax can’t be more than half of what you earn in any pay period.
Codes ending in W1, M1, or X
These are emergency tax codes. If you’ve started a new job and your employer hasn’t yet received details from HMRC, you might be temporarily taxed using one of these codes. It’s usually fixed automatically after your details are processed.
To speed things up, give your new employer your P45 from your previous job. If you didn’t get one, your employer may ask you to fill out a starter checklist.
How to Check Your Tax Code
You can find your tax code on your payslip or through your Personal Tax Account on the HMRC website.
To make sure your code is correct:
- Check if the number reflects your correct personal allowance.
- Look for any letters that indicate special circumstances like multiple incomes or emergency tax.
Think You’ve Paid Too Much?
Use the HMRC online tax checker to see if you’re owed a refund. If you are, you may be able to request it online, or HMRC might adjust your tax code to refund you automatically.
Think You’ve Paid Too Little?
If you think you’ve underpaid tax, contact HMRC as soon as possible. They may adjust your tax code for the following year to recover the money gradually. You can be charged up to £3,000 through your salary. If you owe more, you’ll need to settle it by 31 January after the end of the tax year.
Need Help Understanding Your Payslip or Tax Code?
At Resource Provider Ltd, we help professionals across the UK navigate their career and financial decisions with confidence. From salary breakdowns to personal finance tips, we’re here to provide clarity.
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