Everyone that works in the UK is given a tax code. Your tax code determines how much tax your employer deducts from your pay and consequently how much pay you tax home.
Your tax code is dertmined by your allowances, deductions and benefits such as company cars. If you company does not know what tax code to put you on you may be placed on an emergency tax code and as a result overpay tax.
Your tax code is normally made up of some number and a letter. If you take the number within your tax code and multiple this by 10, you can calculate your tax free allowance. This is the amoutn that you can earn before paying any tax.
The Letter in your Tax Code
The letter in your tax code corresponds to how your allowance should be adjusted following any changes announced by the Inland Revenue or the chancellor. Below is a list of some of the common letter within tax codes and what they mean:
|Letter in Tax Code||Meaning|
|L||For people entitled to the basic Personal Allowance – 647L for the 2010-11 tax year.|
|P||For people aged 65 to 74 and eligible for the full Personal Allowance|
|Y||For people aged 75 or over and eligible for the full Personal Allowance|
|T||If the Inland Revenue need to review any other items in your tax code, for example the income-related reduction to the Personal Allowance.
Tax code ‘0T’ means your allowances have been used up or reduced to nil and your income is taxed at the relevant tax rates.
|K||This tax code is used when your total allowances are less than your total ‘deductions’.|
Sometimes you may not be given a normal tax code, one that does not have a number. This could be because you have two jobs or your employer was not given a P45.
|BR||This tax code is used when all your income is taxed at the basic rate and you are not given any tax allowances. If you are on this tax code you can often end up overpaying tax if it is your only job.|
|D0||This tax code is used when all your income is taxed at the higher rate of tax – currently 40 per cent .|
|NT||This tax code is given when no tax is to be taken from your income or pension|