Every taxpayer in the UK has a tax code. This short series of numbers and letters is used by whoever pays your income (whether that is an employer or a pension provider) in order to ascertain how much tax you should be paying.
Tax Code Format
Generally, your tax code will be composed of one letter and a series of numbers. Most frequently, the letter determines how the number should be interpreted. Alternatively, your code may be composed of two letters and no numbers, or a 'D' followed by a zero. In these cases, different rules apply.
If your tax code is a series of numbers in front of one or two letters, two main methods of interpreting the code should be used. In the first instance, in a tax code in which the letter is followed by numbers, multiplying the numbers by 10 will give the total amount that you are permitted to earn in a year before you must pay tax. This is the case regardless of which letter appears in your code.
However, the individual letter does determine the other meanings of your code. The letter that is most likely to appear in your tax code is 'L'. This means that you are entitled to the basic Personal Allowance, which for the tax year 2018-19 is £11,850. Some other common letters that you might find in your tax code are listed below:
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Try our Income Tax Calculator free, here on this site →- P appears for those between the ages of 65 and 74 who are entitled to the full personal allowance.
- V appears for those between the ages of 65 and 74 who are entitled to the full personal allowance as well as the married couple allowance.
- Y appears for those aged 75 or older who are entitled to the full personal allowance.
- T appears for those from whom HM Revenue & Customs (HMRC) requires more information to determine how much tax you must pay.
Alternative Codes
In some cases, tax codes will take the form of two letters and no number, or a 'D' followed by a zero. This is normally because you have more than one source of income. If, for example, your code includes a 'BR', all of your income will be taxed at the basic rate of 20%. If your code begins with a 'D' and is followed by a zero, all of your income will be taxed at the higher rate of 40%. If your code begins with 'D' and is followed by a 1, all of your income will be taxed at the additional rate of 50%. Finally, if your code includes an 'NT', your income (whether it is 'earned' or a pension) will not be taxed at all.
Your tax code may appear on a number of different documents. If you are employed and paying tax by the PAYE System, your tax code will appear on your pay slip and on the P45 form that your previous employer will have given you. If you receive a pension, you will be notified of your tax code at the beginning of each year. It will appear on your 'notice of coding', which will be forwarded to you by your Tax Office. If you think that your tax code is incorrect, you should inform your Tax Office immediately.
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