UK Tax Codes Explained
Your tax code is used by yourย employer or pension provider to work out how much Income Tax to take from your pay or pension. ย As an employed person you should understand and check your income tax code.
The most common tax code people use in the tax years 2021/22 tax year is 1257L and they always start with numbers and end with a letter. HMRCย will usually contact you to explain how they worked out your individual tax code if your tax code changes.
Your tax code can change if there is a change in your tax-free income. For example:-
- Claiming expenses that you get tax relief on
- Taxable state benefits
- Claiming marriage allowance
- Telling HMRC you have started or stopped receiving benefits from your job
- Additional income from another job or pension
The standard tax code letters are:
- L: Youโre entitled to the standard tax-free Personal Allowance (ยฃ12,570 for 2021/22)
- M: This is for an employee whose spouse or civil partner has transferred 10 per cent of their personal allowance
- N: Youโve transferred 10% of your Personal Allowance to your partner
- T: This signals that you need to review some items with the employer
- 0T: Your Personal Allowance has been used or youโve started a new job and your employer doesnโt have the details they need
- BR: All income from this job is taxed at the basic rate of Income Tax (20%)
- D0: All income from this job is taxed at the higher rate of Income Tax (40%)
- D1: All income from this job is taxed at the additional rate of Income Tax (45%)
- NT: Youโre not paying any tax on this income
- S: Your tax is based on rates in Scotland
- C: Your tax is based on rates in Wales
Emergency tax codes are:
If youโve been placed on emergency tax by your employer, your tax code will in most cases be one of the following:
1257L W1
1257L M1
1257L X