If you are on UK employment, you will automatically be granted a tax code. The amount of tax you will pay will depend on your tax code, as the tax code will determine how much of the UK tax allowance you can claim, the current full UK tax allowance is £12,570 per tax year.
So, it’s crucial that you understand what your tax code is and means to ensure its correct based on your circumstances. You can find your tax code on your payslip, if it’s not mentioned there, you will need to check with your employer.
Understanding tax code letters
L – This means you’re entitled to the standard tax-free Personal Allowance. If you are entitled to the full allowance, your tax code will be 1257L, if you receive a reduced allowance, the 1257 part will change accordingly.
0T – This means your Personal Allowance has been removed, a common example is in situation where your annual salary is above £125,000.
S – This means your income or pension is taxed using the rates in Scotland as you are living in Scotland.
C – This means your income or pension is taxed using the rates in Wales.
BR – This means all your income from this job or pension is taxed at the basic rate without applying allowance, this should be used when this employment is your 2nd employment, and you are claiming your allowance in your first employment and you are a basic rate taxpayer, taking into account all your other income. It’s important to note that if your 2nd employment is a higher salary than your first employment, then it will be more tax efficient to apply your L tax code to the 2nd job and BR code to the first job.
D0 – This means all your income from this job or pension is taxed at the higher rate without applying allowance, this should be used when this employment is your 2nd employment, and you are claiming your allowance in your first employment, and you are a higher rate taxpayer taking into account all your other income.
NT – This means you’re not paying any tax on this income. This could be due to various reasons; a common example would be that you are not a UK resident but on a UK payroll.
M – This means you’ve received a transfer of 10% of your partner’s Personal Allowance. This only applies if both partners are basic rate taxpayers.
N – This means you’ve transferred 10% of your Personal Allowance to your partner.
If your tax code has a ‘K’ at the beginning
Tax codes with ‘K’ at the beginning means you have income that is not being taxed another way and it’s worth more than your tax-free allowance.
For most people, this happens when you’re:
- paying tax, you owe from a previous year through your wages or pension.
- getting benefits you need to pay tax on – these can be state benefits or company benefits from P11D submission.
Emergency tax codes
If your tax code ends in ‘W1’ or ‘M1’ or ‘X’ you’re on an emergency tax code. You may be put on an emergency tax code if HMRC does not get your income details in time after a change in circumstances such as:
- a new job
- working for an employer after being self-employed
- getting company benefits or the State Pension
Emergency tax codes are temporary. HMRC will usually update your tax code when you or your employer give them your correct details. If your change in circumstances means you have not paid the right amount of tax, you’ll stay on the emergency tax code until you’ve paid the correct tax for the year. Unfortunately, when you are assigned an emergency tax code, you don’t necessarily receive the correct tax allowance, meaning you will pay too much income tax, so it’s important to make sure your tax code is update as soon as possible.
