List of Tax Codes and What They Mean

List of Tax Codes and What They Mean: Tax codes may seem like a jumble of letters and numbers but they hold significant importance in determining how much tax you pay and how your income is taxed.

Understanding these codes is important for ensuring accurate tax calculations and avoiding unnecessary tax overpayments or underpayments.

In this article, we’ll guide the various tax codes used by tax authorities and explain what they mean for taxpayers.

What is a Tax Code?

A tax code is like a special code given to you by HM Revenue and Customs (HMRC). It is made up of numbers and letters. This code tells your boss how much money they should take out of your pay for taxes before they give it to you.

The numbers in the tax code show how much money you’re allowed to earn without paying taxes for a whole year.

For example: A common code like 1250L means you can earn £12,500 without having to pay any tax on it.

The letters in the code show if you have any special situations that might change how much tax you owe. Like if you have more than one job or pension, they might need to adjust how much tax-free money you’re allowed.

Your tax code is just for you. It is meant to make sure that the right amount of tax gets taken from your pay based on your situation.

List of Tax Codes and what they mean

The below table provides a clear overview of various tax codes and their respective meanings helping taxpayers understand their tax situations better.

Tax Code	Meaning
L	Under 65, receiving a basic personal allowance
BR, D0 and D1	Second job or pension, a basic rate tax applies
M and N	Marriage allowance transferred to this person
K	No personal allowance, additional tax due
Y	Aged 75 or over, maximum personal allowance
S	Scottish tax rates apply
NT	No tax to be deducted
T	Earnings over £100,000, personal allowance reduced
OT	Earnings over £125,140, no personal allowance, all income taxed
W1	Emergency tax code, tax deducted at basic rate from all earnings
M1	Emergency tax code, tax deducted at the basic rate from all earnings, with adjustment later
X	Emergency tax code, tax deducted at a higher rate from all earnings, usually due to lack of up-to-date info

L: If you see “L” in your tax code, it means you’re under 65 and receiving the basic personal allowance. This is the most common tax code for tax-paying workers.

BR, D0, and D1: These codes are for second jobs or pensions. HMRC counts your first job as your main one, so they give you a personal allowance for that. The second job doesn’t get a personal allowance, but don’t worry, you won’t pay more tax overall.

M and N: These codes indicate a marriage allowance. If it’s ‘N’, you’ve transferred some of your allowance to your spouse. If it’s ‘M’, your spouse transferred some to you. You can only do this if you both earn less than £12,570 a year.

K: A K code means you don’t get a personal allowance. This might happen if you owe tax from before, or if you’ve got company benefits worth more than your allowance.

Y: If you’re 75 or over, this code gives you the maximum personal allowance.

S: This code is for Scottish tax rates.

NT: You won’t pay any tax if you have this code. It’s usually because you don’t earn enough, or you’re self-employed and only pay national insurance.

T and 0T: If you earn over £100,000 a year, you’ll have one of these codes. For every £2 you earn over £100,000, £1 of your allowance gets taken away. The number before the ‘T’ shows how much allowance you have left.

W1, M1, and X: These are emergency tax codes. They’re used when HMRC doesn’t have your updated income info. It means tax gets taken from all your earnings, but it’ll get sorted out later.

Where can I find my tax code?

On your payslip: Look at your monthly or weekly payslip from your employer. Your tax code is usually near the top, along with your National Insurance number and other personal details.

On your P60 form: This is an annual tax statement provided by your employer. Your tax code for the financial year will be clearly stated on it, along with a summary of your income and deductions.

On letters from HMRC: When HMRC changes your tax code, they’ll send you a letter with your new code. This ‘Notice of Coding’ explains why your code has changed.

In your tax account: If you register for an online account with HMRC, you can view your current and previous tax codes when you log in.

On your pension statement: If you have a private or workplace pension, your pension provider will also provide documents showing your tax code related to pension income.

What does a tax code look like?

A tax code looks like a combination of letters and numbers. It usually consists of 3-4 numbers followed by a letter. For example, it might look like “1257L”.

The numbers at the beginning represent your tax-free allowance for the year. In the example “1257L”, the number “1257” indicates a tax-free allowance of £12,570.

After the numbers, there is a letter. This letter indicates your tax situation and how it affects your tax allowance. In the example “1257L”, the letter “L” signifies that you’re entitled to the standard tax-free allowance.

So, in simple terms, a tax code is a mix of numbers and letters that tells you how much you can earn without paying tax and explains your tax situation.

What is the most common tax code?

The most common tax code in the UK is 1257L. This code is widely used because it represents the standard tax-free allowance and applies to individuals with a single job or pension.

HMRC doesn’t give out exact numbers about tax codes. But in 2022, about 32 million people in the UK paid income tax. It’s guessed that around 65-70% of them are basic rate taxpayers. So, it is fair to say that the 1257L tax code might be used by about 20 million workers in the UK.

How does a tax code work?

A tax code is like a special instruction that tells your employer or pension provider how much tax to take from your pay or pension. Here’s how it works:

HMRC gives you a tax code at the start of each tax year, which begins on April 6th. This code is based on your expected income and circumstances for the next 12 months.

Your employer or pension provider uses this tax code to calculate how much income tax should be deducted from your earnings. They use the code to work out your tax-free allowance and how much tax you owe based on your income.

If your circumstances change during the year, HMRC may send you a new tax code to reflect these changes. For example, if you get a pay rise or start a new job, your tax code might be adjusted to make sure you’re paying the right amount of tax.

It is important to make sure your tax code is accurate. If it’s wrong, you might end up paying too much or too little tax. You can check your tax code on your payslip, P60 form, or through your personal tax account online.

Conclusion

Knowing your tax code is important for making sure you pay the right amount of tax. HMRC gives you a tax code based on what they think you’ll earn for the year. Your employer or pension provider uses this code to work out how much tax to take from your pay. It is important to check your tax code regularly to make sure it’s correct. By doing this, you can avoid paying too much or too little tax.

FAQs on List of Tax Codes and What They Mean

What is a tax code?

A tax code is a combination of letters and numbers assigned to taxpayers by HM Revenue and Customs (HMRC). It determines how much income tax should be deducted from your pay or pension.

How is a tax code structured?

A tax code consists of 3-4 numbers followed by a letter. The numbers represent your tax-free allowance while the letter indicates your personal circumstances and any adjustments needed.

What does the number in a tax code signify?

The number at the beginning of a tax code represents your tax-free allowance for the year. For example, the code “1257L” means you can earn £12,570 before paying tax.

What do the letters in a tax code mean?

The letters in a tax code convey specific information about your circumstances. For example, “L” signifies the standard tax-free allowance, while other letters may indicate adjustments for marriage allowance, second jobs, or special circumstances.

How do I find my tax code?

Your tax code can be found on your payslip, P60 form, letters from HMRC, personal tax account, or pension statements.