Understanding Tax Codes

Tax codes are issued by your employer or pension provider to work out how much income tax to deduct from your pay. HMRC then change these if necessary and issue your employer with a new code to use.

Tax codes are usually made up of a number and letters. The number relates to how much tax-free income you can receive within that tax year. For example, the standard tax code for the 2018-2019 tax year is 1185L. Your tax-free allowance is £11,850 for the year. There are many letters that may appear in your tax code. These are explained below:

LetterMeaning
LYou are entitled to the tax-free allowance
MMarriage Allowance – You have received 10% of your partners personal allowance
NMarriage Allowance – You transferred 10% of your personal allowance to your partner
TYour tax code includes other calculations to work out your personal allowance
0TYour personal allowance has been used up, or you have started a new job and your employer doesn’t have all the details they need to issue you a new tax code
BRAll your income from this employment is taxed at the basic rate
D0All your income from this employment is taxed at the higher rate
D1All your income from this employment is taxed at the additional rate
NTYou are not paying any tax in this employment
SYour income is taxed using the Scottish tax rates

If you have a W1 or M1 after your tax code this makes them an emergency tax code. You will be put on these if you start a new job, are working for an employer after being self-employed or receiving company benefits or state pension.

If you have a K before your tax code, then this means you have had income that hasn’t been taxed. This is normally due to receiving company benefits such as a company car etc.

If you believe your tax code is incorrect then your employer or HMRC will be able to advise you on the next step. If you need any more help with keeping tax codes up to date, get in touch to see how we can help.

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