Checking my Tax Code

Checking my Tax Code

Tax codes are essential to the PAYE system’s functionality. The tax code indicates an employee’s allowances or ‘tax-free pay’, if the code is a K-code, or the additional income that the employee is recognised as having earned. The majority of tax codes consist of a letter and a number, however there are others that have a different format.

The different type of numbers

The employee’s net allowances are represented by the number component. This is the difference between their personal allowance for the tax year and any deductions they may have. Deductions may be made to collect tax on things when tax has not been deducted or cannot be deducted, such as non-payrolled benefits or to recover unpaid tax. To get to the number portion of the code, the final digit from the result is deleted. The number component represents notional additional compensation when deductions exceed allowances.

The different type of characters

The characters in the tax code represent a taxpayer’s particular circumstances and how they affect their personal allowances. The following are the suffix codes:

L – the employee is entitled to the usual personal allowance, which is tax-free.

M – the employee’s spouse or civil partner has given them the marriage allowance.

N – the employee’s marriage allowance has been transferred to their spouse or civil partner.

T – additional calculations are included in the tax code in order to calculate the personal allowance.

The code has a K prefix when deductions exceed allowances.

For 2022, the normal personal allowance is set at £12,570. For 2022, the marriage allowance is 10% of the personal allowance, or £1,260.

The different types of Special Code

An employee may have one of the following special codes instead of the standard letter and number format:

BR – indicates that all earnings from a job or a pension are taxed at the basic rate (20% in 2022). It’s typically used when an employee has multiple jobs or pensions.

D0 – signifies that all earnings are taxed at a higher rate (40 percent in 2022).

D1 – means that all income is taxed at a higher rate (45 percent in 2022).

0T – means the personal allowance has been depleted (so receive no allowances). It can also be utilised when an employee begins a new employment and the employer lacks the information necessary to identify which tax code to apply.

NT – indicates no tax is being paid on the income.

Emergency Tax Code

If an employee or pensioner starts a new employment, returns to work for an employer after being self-employed, or receives the state pension, they may be granted an emergency code. The emergency code will be 1250 W1, 1250 M1 or 1250X, and it will indicate that PAYE will not be calculated cumulatively.

Welsh and Scottish Taxpayers

The tax code also specifies if a taxpayer is Scottish or Welsh, and whether they should be taxed at the Scottish or Welsh rates, respectively. The ‘S’ prefix is used by Scottish taxpayers, whereas the ‘C’ prefix is used by Welsh taxpayers.

Checking your tax code

It is important to make sure you understand the many aspects of the tax code and that they are correct. When an employee changes jobs or has many occupations, the allowance may be split between them, causing problems. As a person’s circumstances vary during the year, HMRC adjusts its codes. For example, if a person only does one job and earns £8,000 per year, they may be assigned the code 800L. If they take on a second employment, HMRC will assign a 450L number to that job since it will get the balance of the allowance for the year. A BR or D0 code might be assigned to a third job.