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Tax Codes Explanation - Check your tax code

A new financial year has snuck up on us and it is time once again to check your tax code. For most people, a new financial year indicates that it is time to eagerly anticipate what the new national minimum and living wages is, but what good is a pay rise if you have the wrong tax code and you are paying too much tax?

Last year the subject of tax codes made headlines after a number of workers were given incorrect tax codes due to an admin mix up. Mistakes like this do happen and personal circumstances that can affect our taxation often change so, it is important that you take the initiative to check your tax code is correct and not just assume that HMRC or your employer has it right. 

What is a tax code?

A tax code is a payroll identifier from HMRC. It provides your employer or pension provider with essential information needed to calculate your wages. A tax code is not a unique to each individual.

What your tax code means

Your tax code will usually start with a four digit number and end with a letter. For example, 1250L.

The numbers tell your employer how much tax free income (personal allowance) you get in that tax year with the last digit removed. 

What is tax free income (Personal Allowance)?

Personal allowance or tax free income is the total amount of money you can earn in a year before you start paying tax. 

How are the numbers in the code worked out? 

The tax you pay is calculated on all income that you earn over and above your personal allowance. Sticking with the tax code example 1250L, the personal allowance indicated by this code is £12,500 with the last zero and any symbols removed = 1250. So, an individual with the tax code that begins 1250 can earn up to £12,500 in a tax year before they start paying tax. 

What do the letters mean? 

The letters at the end of your tax code identify your personal situation and how it affects your personal allowance, these letters come from a predefined list of tax codes that you can find a little further down this post. 

How to check your tax code

The numbers in a tax code can change depending on your personal circumstances but 1250L is the tax code currently used for most people who have one job or pension. 

It is the letters at the end of your tax code that is the most important part to check against the following list of tax codes to make sure the description is an accurate fit for you. You will find your tax code on a recent payslip. Find out more about understanding your payslip and where to find your tax code.

List of tax codes and what they mean

  • L -------- You are entitled to the standard tax free personal allowance. 
  • W1 -------- Emergency tax code - This is a temporary code that will be used if you have not yet provided details of your previous employment such as a P45 to your employer. Until HMRC can work out what your tax code should be, an emergency code will be used. 
  • M1 -------- Emergency tax code - This is a temporary code that will be used if you have not yet provided details of your previous employment such as a P45 to your employer. Until HMRC can work out what your tax code should be, an emergency code will be used. 
  • X -------- Emergency tax code - This is a temporary code that will be used if you have not yet provided details of your previous employment such as a P45 to your employer. Until HMRC can work out what your tax code should be, an emergency code will be used. 
  • M -------- Marriage Allowance: 10% of your partners personal allowance has been transferred to you. 
  • N -------- Marriage Allowance: 10% of your personal allowance has been transferred to your partner.
  • T -------- Your tax code includes other calculations to work out your personal allowance. You can ask HMRC or your employer what these are. 
  • OT -------- Your personal Allowance has been used up, or you have started a new job and your employer does not have the details they need to give you a tax code. You need to speak with your employer to resolve any issues. 
  • BR -------- All of your income from this job or pension is taxed at the basic rate 20%. Usually used if you have more than one job or pension).
  • DO -------- All of your income from this job or pension is taxed at the higher rate 40%. (Usually used if you have more than one job and your earnings exceed £50,001.
  • D1 -------- All of your income from this job or pension is taxed at the additional rate 45%. (Usually used if you have more than one job and your earnings exceed £150,000.
  • NT -------- You are not paying any tax on this income. 
  • S -------- Your income or pension is taxed using the rates in Scotland.
  • SOT -------- Scotland - Your personal Allowance has been used up, or you have started a new job and your employer does not have the details they need to give you a tax code. 
  • SBR -------- Scotland - All of your income from this job or pension is taxed at the Scottish basic rate 20%. Usually used if you have more than one job or pension).
  • SDO -------- Scotland - All of your income from this job or pension is taxed at the Scottish immediate rate 21%. (Usually used if you have more than one job and your earnings exceed £25,159.
  • SD1 -------- Scotland - All of your income from this job or pension is taxed at the Scottish higher rate 41%. (Usually used if you have more than one job and your earnings exceed £43,431.
  • SD2 -------- Scotland - All of your income from this job or pension is taxed at the Scottish top rate 46%. (Usually used if you have more than one job and your earnings exceed £150,000.
  • C -------- Your income or pension is taxed using the rates in Wales.
  • COT -------- Wales - Your personal Allowance has been used up, or you have started a new job and your employer does not have the details they need to give you a tax code. 
  • CBR -------- Wales- All of your income from this job or pension is taxed at the Welsh basic rate 20%. Usually used if you have more than one job or pension).
  • CDO -------- Wales - All of your income from this job or pension is taxed at the Welsh higher rate 40%. (Usually used if you have more than one job and your earnings exceed £50,001.
  • CD1 -------- Wales - All of your income from this job or pension is taxed at the Welsh additional rate 45%. (Usually used if you have more than one job and your earnings exceed £150,000.

If your tax code has a K at the beginning 

K - You have an income that exceeds your personal allowance and has not already been taxed. For example, if you are receiving state benefits that exceed your personal allowance, your employer will deduct the tax for these.

Emergency tax codes

You may be put on an emergency tax code if you change jobs or if you begin working for an employer after being self employed. HMRC will correct it automatically after you have given your employer some details about your previous income or pension. Your employer can get these details from your P45 but if you don't have one, they will ask you for some further information to help them out. 

Online tax code checker

The HMRC website does have an online portal to help you to check your tax code, click here.

What to do if you think your tax code is wrong

If you think your tax code is wrong, you need to contact HMRC so they can send a new tax code notice to your employer. 

  • Online: You can use HMRC's online Income tax checker to let them know about a change in your circumstances.
  • Phone: You will need to have your National Insurance (NI) number to hand when you call HMRC regarding your tax code. The phone line uses automated voice recognition software to help direct your call, so it is important to speak clearly and say “question about my tax code” when you are asked why you are calling. The phone number you need is 0300 200 3300 and the opening times for the phone line are currently Monday to Friday 8am to 4pm.

Does having a second job affect my tax code? 

No, your tax is calculated on everything you earn as a whole regardless of how many jobs you have. Your personal allowance (tax free income) doesn't change with the number of jobs you have; you are still taxed on anything you earn over and above this amount. The only real affect a second job has on your tax could be the rate of tax you pay ie: basic 20%, higher 40% or additional 45% based on your total income combined from all jobs. Your tax code may display the letters BR DO or D1 on the payslip from your second job. 

  • All earnings (after personal allowance) up to £50,000 are taxed at 20%
  • All earnings between £50,001 and £149,000 are taxed at 40%
  • All earnings above £150,000 are taxed at 45%

Can I get a second job even if I am furloughed?

This depends on your employment contract and your employer. During a furlough period, you are still employed under contract so the first thing you need to do is check with your employer or HR department to see if your contract restricts you from being able to work for someone else while you are furloughed or if you are free to go ahead and take a second job or a temporary job to help subsidise your income. 

Even if your contract does state that you cannot take on a second job, it is worth still getting in touch with your employer to ask if it is ok to get a temporary job during these unprecedented times. The chances are your contract was not created with a situation like this in mind and so many employers are open to making an exception in light of current circumstances. 

There are many jobs where staff are urgently needed to help during the COVID-19 outbreak. Catering Assistants, Porters, Postal Workers, Delivery Drivers and Warehouse Operatives are among the most in demand roles across the UK right now.  

Register with Blue Arrow to get access to temporary roles that urgently require staff.

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