UK Tax Codes Explained

Posted on by jennifermrichardson

Your tax code is used by yourΒ employer or pension provider to work out how much Income Tax to take from your pay or pension. Β 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. HMRCΒ 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: You’re entitled to the standard tax-free Personal Allowance (Β£12,570 for 2021/22)
  • M: This is for an employee whose spouse or civil partner has transferred 10 per cent of their personal allowance
  • N: You’ve 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 you’ve started a new job and your employer doesn’t 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: You’re 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 you’ve 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