Tax codes may look like a random set of letters and numbers, but they determine how much tax is deducted from your salary or pension – so they’re pretty important.
HMRC tells your employer or pension provider which code to use so it’s worth making sure your code is correct otherwise you could end up paying too little or too much tax.
The easiest way to find your tax code is checking your payslip, your P45 or your P60. You can also get it from HMRC if necessary.
The meaning behind your tax code
Your tax code is usually a combination of a number and a letter. The number often relates to the amount you can earn before paying tax; for example, 1250L would mean you can earn the full personal allowance (£12,500) before paying tax.
This number may be lower if you’re claiming for expenses such as wearing a uniform at work or professional subscriptions, or if you’re given benefits in kind by your employer such as a company car or medical insurance.
Here’s a list of some of the most common codes and their meaning:
If you’re under 65 and earn less than £100,000 a year, the chances are this’ll be your code. It means you’re eligible for the basic tax-free Personal Allowance.
C and S
Your income or pension is taxed using rates in Wales (C) or Scotland (S).
T and 0T
These codes signal other calculations are needed to work out your Personal Allowance. This might be because you earn over £100,000, which means you’ll lose £1 of your Personal Allowance for every £2 it is over, or you’ve reached £125,000, meaning your whole income will be subject to the higher rate of Income Tax.
M and N
M or N signals you’re using the Marriage Allowance, letting you transfer £1,250 (10%) of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.
The person giving up some of their allowance will be issued with an ‘N’ code and the receiver will have ‘M’.
BR, D0 and D1
Work more than one job? You’ll find one of these codes on your payslip or pension notice.
BR shows your income is being taxed at the basic rate (20%) and D0 the higher rate (40%).
D1 shows all your income is being taxed at 45% if you earn over £150,000 a year.
This stands for ‘no tax’, either because your total income is less than your Personal Allowance or because you’re a self-employed contractor who is liable to pay National Insurance but not Income Tax.
This means you have income that is not being taxed but it’s worth more than your tax-free allowance, either from owing tax from a previous year or receiving a company or state benefits like a company car.
W1 and M1
These are emergency tax codes and are temporary, used when HMRC doesn’t have enough information about you. W1 refers to weekly pay and M1 refers to monthly pay.
This could be because you’re starting a new job and you don’t have a P45 from your previous employer, or if you’ve previously been self-employed
What to do if you think your tax code is wrong
Tony Mills, director of Online Tax Rebates, says: “Keep calm. If you’ve been under or overpaying tax, it can easily be sorted. HMRC can adjust your code either up or down to recover or repay tax.
“If you think you might be owed a tax rebate, you can use a free online calculator to check and apply for a refund.
“If you owe tax, then you will have to pay it. You won’t have to pay it all at once as HMRC will agree a payment plan with you or let you pay off smaller amounts through your salary.
“Remember to update HMRC if your circumstances change such as moving job, going self-employed or getting a big salary bump.”