We can all agree that taxes can be tricky, right? But worry no more! In this article, we will present a guide to UK tax codes and discuss everything about tax code changes and what this means for you!
What is a tax code?
If you work, your employer will provide you with a tax code to figure out how much tax will be deducted weekly or monthly from your salary. If however, you are a pensioner, your pension provider will use a tax code to determine your taxes as well.
But what exactly is a tax code? A tax code is a code with numbers and letters that shows how much Income Tax and National Insurance you should pay to HMRC.
What is the most common tax code?
The most common tax code for the current tax year is 1257L, which means you can earn £12,570 free of tax. This means that you only start to pay taxes when you earn more than this amount. It's usually used for most people with one job and no untaxed income.
Note that 1257L is an emergency tax code only if followed by ‘W1’, ‘M1’ or ‘X’.
What do the most common tax code letters mean?
- BR – This one applies when you have a second job or pension (the rate is currently set at 20%);
- C - It means that your income or pension is taxed based on the rates in Wales;
- D0: All income from this job is taxed at the higher rate of Income Tax (the rate is currently set at 40%);
- D1: All income from this job is taxed at the additional rate of Income Tax (the rate is currently set at 45%);
- K – This is the opposite of the L tax code, which indicates that the tax you owe is greater than your Personal Allowance (£12,570 for this tax year). This could happen when you have to pay tax on your wages from a previous year, company benefits or when you get a State Pension and need to pay tax for getting benefits from your work;
- NT – This means you have income that you don't need to pay taxes on;
- OT – Once your income reaches £125,140, you are going to lose the Personal Allowance. Besides this, your entire earnings will be subject to the appropriate rates of Income Tax. As this is also an emergency tax code, it can also indicate that your employer doesn’t have the details they need;
- S – This one shows that you are taxed based on the rates in Scotland;
- T – This applies when you earn over £100,000. In this case, for each £2 earned over £100,000, £1 is taken off your Personal Allowance, until it reaches £0. Your tax code gets a ‘T’ at this point, preceded by numbers indicating the level of Personal Allowance you have left.
How do I find my tax code?
You can find your tax code in several places, like in:
- Your payslip;
- Your P60 (the annual tax summary you get from your employer);
- Your P45 (the document you receive from an employer when you stop working for them).
Alternatively, you can also call HMRC to find your tax code (0300 200 3300).
How do I check if my tax code is correct?
Having the wrong tax code means that you are either paying too little or too much tax, so it's important to know exactly if your tax code is correct or not.
In case you are paying too much, you can get a tax refund (we can help you with this!). If you're paying too little, you will have to repay HMRC.
If you think your tax code is wrong, you can update your employment details here.
Am I owed a tax refund?
You might be eligible for a tax refund from HMRC if you have daily costs of work that may help bring down the amount of tax you owe.
Find out here which expenses you can claim back if you're employed or here if you're self-employed.