Tax codes

What is it used for?

Tax codes are codes that are used by your employer or pension provider to work out how much your income is how much tax is likely to be deducted from your pay. This is also used to calculate other deductions such as national insurance tax, student loans and pension calculation. Tax codes often start with numbers and end in a letter, all of which have different meanings.

What does it mean?

Numbers- The numbers in your code tell HMRC how much of your income you actually receive before tax. The basic tax code is 1257L which assumes you only have one job and one pension. However, when you have more sources of income or more than one job the tax code becomes more complex, it varies dependant on income.

The table below will show the letters that can appear on your tax code and what they mean

There are also additional tax codes which include ‘W1’, ‘M1’ or ‘X’ which are emergency tax codes. If your tax code begins with a ‘K’ it often means you’re paying tax you owe from a previous tax year from your income or pension. Or it can also mean you receive state benefits/company benefits.

For more information on tax codes and what yours mean visit Gov.uk.

Who Issues tax codes?

Everyone who works and is paid from PAYE in the UK has a tax code. It is issued by HMRC, these ensure employers take the correct amount of tax from employees. To view your tax code, they usually are found in your payslip, P45 or you can contact HMRC for help.

Why has my tax code changed?

HMRC can change your code dependant on if your income has changed and you earn more or less than previously. You can also be altered so you don’t pay too much or too little tax.

Solving Problems

Sometimes your employer can make a mistake when processing tax codes. Whether it be entering incorrect details, using out of date PAYE tables, not consulting HMRC before using a tax code or not updating their system. This then means that HMRC have been sent incorrect details, which may result in you paying too much tax. However, when this happens do not be alarmed just contact HMRC and they will sort out the issue. Usually, HMRC sends you a tax refund at the end of a tax year, or if you contact them, then they can send you a tax rebate sooner.

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