Explain My Tax Code
Your employer or pension provider uses your tax code to work out how much tax to take from your pay or pension.
HM Revenue and Customs (HMRC) works out your tax code and sends it to your employer or pension provider.
Usually a tax code is several numbers and a letter.
Most people born after 5 April 1948 with one job have 1000L as their tax code for the 2014 to 2015 tax year.
Tell HMRC if you think you’re paying too much or too little tax. If HMRC agrees they’ll adjust your tax code so that you:
- get your full tax-free Personal Allowance
- pay the right amount of tax for all of your income, spread over a year
More than one tax code
If you’ve only got one employer or pension, you’ll have one tax code.
But if you get income from more than one employer or pension provider, each will usually use a different tax code.
Tell HMRC if you think you’re paying too much or too little tax and have more than one tax code.
Where to find your tax code
You can get your tax code from:
- payslips from your employer or pension provider
- P45 from an employer if you leave a job
- P60 from your employer at the end of each tax year
- a PAYE Coding Notice – you may get one by post or you can check using HMRC’s Self Assessment online service if you’re registered
Your tax code doesn’t tell employers or pension providers how much you earn – it only tells them how much tax they need to take from payments they make to you.
2. Numbers in your tax code: what they mean
The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year.
HM Revenue and Customs works out your tax-free Personal Allowance.
Income that you haven’t paid tax on (eg untaxed interest or part-time earnings) and the value of any benefits from your job (eg a company car) are added up.
The income that you haven’t paid tax on is taken away from your allowances. What’s left is the tax-free income you’re allowed in a tax year.
This amount is divided by 10 and added to the letter for your circumstances.
The process is different if you have the letter ‘K’ in your tax code.
3. Letters in your tax code: what they mean
The letter in your tax code helps your employer or pension provider to work out how much tax to take from your wages or pension.
||What it means|
|L||You’re entitled to the basic tax-free Personal Allowance|
|P||You are aged 65 to 74 and entitled to your full tax-free Personal Allowance|
|Y||You are aged 75 or over and entitled to your full tax-free Personal Allowance|
|T||Your tax code includes other calculations to work out your Personal Allowance (eg it’s been reduced because your income is over specific limits)|
|0T||Your Personal Allowance has been used up, or you’ve started a new job and don’t have a form P45, or you didn’t give your new employer the details they need to give you a tax code|
|BR||All your income from this job or pension is taxed at the 20% basic rate (usually used if you’ve got more than one job or pension or when you start your first job and your employer is waiting for a tax code)|
|D0||All your income from this job or pension is taxed at the 40% higher rate (usually used if you’ve got more than one job or pension)|
|D1||All your income from this job or pension is taxed at the 45% additional rate (usually used if you’ve got more than one job or pension)|
|NT||You’re not paying any tax on this income|
If your tax code has a ‘K’ at the beginning
Tax codes with ‘K’ at the beginning mean that you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance. For most people, this happens when you’re:
- paying tax you owe from a previous year through your wages or pension
- getting State benefits that you need to pay tax on (like the State Pension)
- getting benefits from work that you must pay tax on (like a company car or health insurance)
Your employer or pension provider takes the tax due on the income that hasn’t been taxed from your wages or pension – even if another organisation is paying the untaxed income to you.
Employers and pension providers can’t take more than half your pre-tax wages or pension when using a K tax code.
If your tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes. This means your tax is based only on what you are paid in the current pay period, not the whole year.
Which code you get depends on whether you are paid weekly or monthly.
They appear at the end of your tax code, eg ‘577L W1’ or ‘577L M1’
You will always start a new tax year with a normal tax code, not an emergency one.
4. When your tax code changes
The most common reasons for a tax code change are if you start or stop getting:
- benefits from your job that you need to pay tax on
- expenses from work that you can reclaim tax for
- income that isn’t being taxed (like rental income)
State benefits (including the State Pension) that you need to pay tax on
Your tax code will also change if you need to pay tax due from previous years through your wages or pension.
You may be temporarily put on an emergency tax code if you change jobs.
What happens when your tax code changes
You, your employer or your pension provider tells HM Revenue and Customs (HMRC) about the change.
HMRC works out what to do with your tax code (or tax codes if you’ve got more than one).
HMRC sends a new tax code to your employer or pension provider. Once they’ve got it, they’ll use it to work out how much tax to take from your payments from the next time they pay you.
HMRC sends you a ‘PAYE Coding Notice’ which explains the changes
5. What your PAYE Coding Notice means
HM Revenue and Customs (HMRC) may send you a PAYE Coding Notice before the beginning of a tax year.
They will send you one if your tax code changes during a tax year.
It tells you what your tax code is and how it’s been worked out. Your employer or pension provider uses the tax code to work out how much tax to take from payments they make to you.
You don’t need to do anything with your PAYE Coding Notice, unless you think it’s wrong.
What’s on your PAYE Coding Notice
Along with your tax code, your PAYE Coding Notice shows:
- allowances that reduce your tax bill
- things that you’ve got to pay tax on through your wages or pension
Positive numbers on your PAYE Coding Notice
Positive numbers are part of your income that you don’t need to pay tax on. They include things like:
- the tax-free Personal Allowance you’re entitled to
- Married Couple’s Allowance if you get it
- expenses repaid by your employer that you can get tax back on
Negative numbers on your PAYE Coding Notice
Negative numbers are income that you haven’t paid tax on, but the tax will be collected by your employer or pension provider before they pay you.
They include things like:
- benefits from your job that you need to pay tax on
- state benefits (including the State Pension) that you’re getting but need to pay tax on
- tax you owe from previous years that you’re paying through your employer or pension provider
What the calculation shows
The calculation shows how HMRC has worked out your tax code.
6. If you think you’ve paid too much tax
How you claim a refund depends on your circumstances.