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UK Tax Codes Explained

  • Posted 25th March 2015

UK Tax Codes Explained

What is a Tax Code?

A tax code consists of letters and numbers. It is shown on your payslip, P60 you get after the end of tax year, your P45 when you leave a job and on PAYE coding notice. A tax code gives your employers and pension providers’ information on how much they should charge tax from your salary before giving it to you. When you are self-employed, get company benefits or a pension, HM Revenue & Customs(HMRC) will revise your tax code. Your tax code should always be correct as a wrong tax code will make you pay more or little tax than you are supposed to.

How tax code works?

If you have to pay certain expenses then it will be added to personal allowances in your tax code. Also, taxable income and employment benefits are added up. The income where no tax is deducted is taken away from total tax allowances. Then, the remaining amount is the total tax free income you allowed in a tax year which is divided by 10 to and added to the letter relevant to your circumstances.

What letters in your tax code mean?

• BR: You have more than one job or pension or when you start your first job. All your income from such source is taxed at the 20% basic rate • DO: You have more than one job or pension. All your income from such source will be taxed at the 40% higher rate. • K: You have income worth more than your tax free allowance. This means your income hasn’t been taxed from your wages or pension. • L : You are entitled to the basic tax free personal allowance • NT : You do not have to pay tax on this income • P : You were born between 6 April 1938 and 5 April 1948 and are entitled to your bigger full tax-free personal allowance • T : Your tax code includes other calculations • OT: Your Personal Allowance is not used or you have a new job and didn’t give provide the details to your employer to give you a tax code • Y: You were born before April 6 1938 and are entitled to full tax free personal allowance • D1: You have more than one job or pension and your income from such source is taxed at 40% higher rate To those who wanted to know about tax codes, I hope this blog helped you and explained your queries.

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