List of Tax Codes and What They Mean
Understanding UK tax codes is crucial for ensuring accurate tax deductions and compliance with financial regulations. Tax codes are alphanumeric codes used by HM Revenue and Customs (HMRC) to determine the amount of tax deducted from your wages or pension. This guide breaks down the most common tax codes and their meanings, helping you navigate the complexities of the UK tax system.
What Are Tax Codes?
Tax codes are composed of numbers and letters. The numbers represent the tax-free amount you are entitled to, while the letters indicate your tax situation. For example, the code 1257L means you are entitled to a £12,570 tax-free allowance.
Breakdown of Common Tax Codes
Tax Codes Starting with Numbers
1257L: This is the most common tax code for the 2023/24 tax year. It means you are entitled to the standard Personal Allowance, which is £12,570. This code is used for most employees with no special tax circumstances (GOV.UK).
0T: This code is used when you have no personal allowance left, often because your income is above the higher rate threshold. It may also apply if you haven’t provided your employer with a complete tax code (Wise).
K Codes: These codes indicate that you have taxable income that is not covered by your tax-free Personal Allowance, such as benefits or a state pension. For example, K497 means that £4,970 will be added to your taxable income (GOV.UK).
Letters in Tax Codes
L: This code is used for individuals entitled to the basic Personal Allowance (GOV.UK).
M: This indicates that you have received a Marriage Allowance transfer from your spouse, increasing your tax-free amount by 10% (UK Salary Tax Calculator).
N: Conversely, this means you have transferred 10% of your Personal Allowance to your spouse (UK Salary Tax Calculator).
T: This code is used when other calculations are needed to determine your tax-free amount (Wise).
BR: This stands for Basic Rate, meaning all your income from this job or pension is taxed at the basic rate of 20% (GOV.UK).
D0: This code indicates all your income is taxed at the higher rate of 40% (GOV.UK).
D1: This means all your income is taxed at the additional rate of 45% (GOV.UK).
NT: No tax is deducted from your income. This might apply to certain non-resident individuals or special cases (UK Salary Tax Calculator).
Special and Emergency Tax Codes
W1/M1: These are emergency tax codes used on a non-cumulative basis. They apply if your employer does not have sufficient information about your tax situation (GOV.UK).
S Codes: Prefix ‘S’ indicates you are a Scottish taxpayer, which subjects you to Scottish tax rates. For instance, S1257L follows the same structure as 1257L but applies Scottish tax rates (GOV.UK).
How to Check Your Tax Code
It’s essential to verify your tax code to ensure you are not overpaying or underpaying taxes. You can find your tax code on your payslip or through HMRC’s online services. If you suspect an error, contact HMRC immediately (GOV.UK).
Impact of Incorrect Tax Codes
Using the wrong tax code can result in significant tax issues. Overpayment of taxes can strain your finances, while underpayment can lead to penalties. Ensuring the accuracy of your tax code is crucial for financial health (Income Tax).
Tax Codes and Employment Transitions
When changing jobs, your previous employer should provide you with a P45 form, which includes your tax code. Present this form to your new employer to ensure continuity in your tax deductions. If you don’t have a P45, your new employer will use a starter checklist to determine your tax code (London Updates).
Tax Codes in Different Parts of the UK
Scottish Tax Codes
In Scotland, different income tax rates apply, and this is reflected in the tax codes. Codes prefixed with ‘S’ indicate that Scottish tax rates apply. For example, S1257L means the individual is entitled to the standard Personal Allowance, but their income is taxed according to Scottish rates (GOV.UK).
S0T: Used when an individual has no personal allowance left under Scottish tax rates, or the employer does not have complete details to allocate a tax code.
SBR, SD0, SD1, SD2: These codes indicate different tax rates (basic, intermediate, higher, and top rates respectively) under Scottish tax rules (GOV.UK).
Welsh Tax Codes
Wales has its own set of tax rates as well, indicated by codes prefixed with ‘C’. For instance, C1257L means the standard Personal Allowance applies, but income is taxed according to Welsh rates.
C0T: Used when no personal allowance is available under Welsh rates, similar to 0T for the rest of the UK.
CBR, CD0, CD1: These codes indicate basic, higher, and additional tax rates under Welsh tax rules (GOV.UK).
Tax Codes for Specific Situations
K Codes: These codes are used when the total deductions due exceed the Personal Allowance. For example, K475 means £4,750 will be added to your taxable income to account for benefits or previous unpaid taxes.
Emergency Tax Codes (W1/M1): These codes are used when there is insufficient information about an individual’s tax situation. They are non-cumulative, meaning tax is calculated only on the pay period in question, not accounting for previous periods.
How to Correct Tax Code Errors
If you suspect your tax code is incorrect, it’s essential to act quickly. Contact HMRC to verify and correct any discrepancies. Providing accurate information about your income, benefits, and allowances will help ensure your tax code is updated correctly.
Frequently Asked Questions
Q: How can I check my tax code?
A: You can find your tax code on your payslip, P45, P60, or through HMRC’s online services. If you suspect an error, contact HMRC immediately (GOV.UK).
Q: What happens if my tax code is wrong?
A: An incorrect tax code can result in overpaying or underpaying taxes. Overpayment can strain your finances, while underpayment can lead to penalties. It’s crucial to ensure your tax code is accurate.
Q: How do I update my tax code?
A: Contact HMRC to provide accurate information about your income, benefits, and allowances. They will issue an updated tax code to your employer or pension provider.
Q: What is an emergency tax code?
A: Emergency tax codes (W1/M1) are used when there is insufficient information about your tax situation. They are non-cumulative, meaning tax is calculated only on the pay period in question (GOV.UK).
Q: How do I know if I am on an emergency tax code?
A: Emergency tax codes usually have W1, M1, or X at the end. Check your payslip or contact HMRC if you suspect you are on an emergency tax code.
Q: What are Scottish tax codes?
A: Scottish tax codes are prefixed with ‘S’ and indicate that Scottish tax rates apply. For example, S1257L means the standard Personal Allowance applies, but income is taxed according to Scottish rates (GOV.UK).
Q: What are Welsh tax codes?
A: Welsh tax codes are prefixed with ‘C’ and indicate that Welsh tax rates apply. For example, C1257L means the standard Personal Allowance applies, but income is taxed according to Welsh rates (GOV.UK).
Q: What is a K code?
A: K codes are used when the total deductions due exceed the Personal Allowance. For example, K475 means £4,750 will be added to your taxable income to account for benefits or previous unpaid taxes (GOV.UK).
Q: What does the BR tax code mean?
A: The BR tax code means all income from this job or pension is taxed at the basic rate of 20%. It is commonly used if you have more than one job or pension (GOV.UK).
Q: Can my tax code change during the year?
A: Yes, your tax code can change during the year due to changes in your circumstances, such as starting a new job, receiving a pay increase, or changes in benefits. HMRC will notify you and your employer of any changes (GOV.UK).
Additional Resources
For more detailed information about UK tax codes, consider visiting the following resources:
- HMRC Official Website offers comprehensive guides and updates on tax codes.
- Citizens Advice provides independent advice on managing your tax affairs.
- MoneySavingExpert has valuable tips on tax refunds and personal finance management.
For further insights, you can also explore London Updates, which offers various articles on UK tax matters and financial advice.
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