This is a fundamental area of your day-to-day finances that often gets ignored. Tax codes should be on your radar to check regularly as the information is personalised to your tax situation.
Where to find your tax code, and what it means
A tax code appears on your wage slip and tax notifications.
It is written as a series of numbers, along with one or more capital letters:
Such as 1257L
When multiplied by 10, the number gives the amount of your personal tax allowance. That’s the amount you can earn up to without paying tax. Any earnings above this figure are taxable.
So, a tax coding of 1257L represents a personal allowance of earnings of £12,570.
The letter, L in this case, shows that you are entitled to a standard tax-free personal allowance (currently £12,570) and are below 65 years of age.
Other letters are used which represent different tax allowances and treatments.
| Tax code | Tax classifications & entitlements |
| L | Basic rate taxpayer. Second jobs are often put onto a BR code |
| K | The letter ‘K’ is written before the number in a tax code as it signifies a negative figure. It normally refers to an employee receiving company benefits, e.g. company car, electronic devices |
| BR | A person above 75 years of age with the maximum personal allowance |
| Y | A person above 75 years of age with the maximum personal allowance |
| NT | In receipt of income that is not taxable |
| DO | Higher rate taxpayer (currently 40%) |
| W1, M1, X | Emergency tax codes |
HMRC issues new tax codes at the start of each new tax year (from 6th April). The notice of tax coding is called a P2 notice of coding. A copy is sent to you and is also sent to your employer.
You should check your coding each time you receive a P2 notice. It’s also recommended to check it on your monthly wage slip from your employer.
Tax codes can be wrong!
You may be on the wrong code for your circumstances for a range of reasons, including:
- You recently entered or left the formal workforce.
- You’ve changed jobs
- You no longer have a company benefit, such as a company car or the use of a company mobile or laptop.
- You have unclaimed work expenses that are legitimate to your role, including mandatory uniform items (e.g. Chef’s Whites, safety boots etc). Such qualifying items can be reclaimed for a tax rebate going back four consecutive tax years.
- An admin error by your employer or HMRC.
What if you believe your tax code is incorrect?
It’s not enough to simply inform your employer that you believe you’re on the wrong tax code as they cannot change it. You should also inform HMRC as they can check and if necessary, change your tax coding.
There is a lot of information about tax coding on the HMRC website, including a handy tax code checker. Head over to www.gov.uk/tax-codes for more information.
We’re here to help
Rackham’s Accountants are here to answer any questions you may have regarding your tax code or tax affairs in general. Call 01482 631700 or drop us an email info@rackhamsaccountants.co.uk
