Struggling to understand the UK’s income tax code system? Ronica Ruparelia explains all here...
I’ve been working in the field for The Next Step for five years now. As part of my role, I’ve spent a lot of time with medical and dental students, offering them financial education in the areas that matter most to them. Recently, I’ve noticed that more and more students are asking me about income tax codes.
Taxation is something that affects most of us. Income tax, often referred to as simply ‘tax’, is money deducted directly from your pay (this will be different if you’re self-employed). Although, you don’t have to pay tax on all types of income.
Here, I’ll unravel the intricacies of UK tax codes and what each one means.
UK income tax codes and what they mean
UK tax codes are alphanumeric identifiers used by HM Revenue & Customs, otherwise known as HMRC. These codes are used to determine how much tax should be deducted from your income and paid to the state.
These codes are also sent to employers and pension providers, helping them to calculate the correct amount of tax. Tax codes are based on individual circumstances, and can alter based on changes to tax laws or your personal situation.
Here are some common UK tax codes and what they mean:
- L – Entitled to tax-free allowance
- M – Marriage allowance
- N – Marriage allowance transfer
- T – Temporary tax code
- NT – You’re not paying any tax on this income
- 0T – Your personal allowance has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code
- BR – All of your income from your job or pension is taxed at the basic rate (usually used if you have more than one job or pension)
- D0 – All of your income from your job or pension is taxed at the higher rate (usually used if you have more than one job or pension)
- D1 – All of your income from your job or pension is taxed at the additional rate (usually used if you have more than one job or pension)
- S – Scottish taxpayers
- C – Welsh taxpayers
These are just a few examples, and there will be more codes based on individual circumstances. Your specific code will depend on factors such as your income, tax allowances and any deductions or adjustments to your pay.
If you want to find out more about your current tax code, you can use the HMRC tax code checker.
What should my tax code look like?
When starting as an F1 or DF1, your tax code should appear as 1257L. For the majority of people, this is the most common tax code. It’s used for people with one job and no untaxed income, unpaid tax or taxable benefits – for example, a company car.
However, there are times when this is not the case, and you could possibly be on an emergency tax code. People on this type of code are likely to be paying more tax than is needed. You can easily spot an emergency tax code as it will end in a W1, M1 or X – for example:
- 1257L W1
- 1257 M1
- 1257L X
An emergency tax code is nothing to worry about. It just means that HMRC didn’t receive your income details after a change in circumstances, such as starting a new job.
You’ll need to update your employer who will be able to change your tax code by sending the correct details to HMRC. Just make sure to do this as soon as possible if you spot a mistake.
Navigating the UK tax system can be challenging, but understanding your tax code is crucial when it comes to making sure you’re never paying too much tax. Remember, if you have questions about your tax code, you can contact HMRC directly.
Information correct as of date of publication.