In the 2015/16 tax year, millions of taxpayers in the UK will have the tax code 1060L. This tax code applies to you if you receive the full tax free Personal Allowance while 1060L is also the ‘emergency tax code’ for the 2015-16 tax year.
Keep reading to find out everything you need to know about the 1060L tax code in 2015 and 2016.
What is the ‘L’ tax code?
In the UK, every person is allowed to earn a certain amount of money without paying any income tax. This is called your ‘personal allowance’.
In April 2015 the Personal Allowance increased from £10,000 (in the 2014/15 tax year) to £10,600. This means most people can earn £10,600 before they start to pay any income tax.
If your tax code features numbers and then the letter ‘L’ it means that you were born after 5 April 1938 and you are eligible for the basic Personal Allowance (£10,600) in the 2015-16 tax year.
If your tax code ends in ‘Y’ it means that you were born before 6 April 1938 and you are eligible for the full Personal Allowance. If your tax code ends in ‘M’ or ‘N’ it means that you’ve either transferred or received 10% of your Personal Allowance to/from your partner.
Working out your tax code
To work out your tax code, you first have to add up your tax allowances. For most people this will be just the basic Personal Allowance although you may also have age related allowances or a Blind Person’s Allowance.
You then have to total up the income that you haven’t paid tax on. This may include untaxed savings interest, income from a second job or untaxed company benefits. These are your ‘deductions’ and they are taken away from your allowances.
What is left is the amount you can earn in the tax year before you pay any income tax. You should the divide this number by 10 and add the letter which fits your personal circumstances.
For millions of people the steps to working out their tax code will be:
- Allowances – Basic personal allowance of £10,600
- Deductions – none
- £10,600 divided by 10 = 1,060
- Born after 5 April 1938 and eligible for full Personal Allowance = letter L
- Tax code therefore 1060L
Why 1060L may be your ‘emergency’ tax code
If you have recently changed jobs, you have more than one job or you haven’t sent your current employer a copy of your P45, HMRC may not have sufficient information about your income to send your employer or pension provider a correct tax code. Here, they will issue an ‘emergency tax code’ which is used on a temporary basis while HMRC establish what your correct tax code should be.
If you have an emergency tax code it will ensure that you receive the basic tax free Personal Allowance (£10,600 in tax year 2015/6). However, it doesn’t take any other allowances into account.
The emergency tax code is set each year by HMRC and is a number followed by the letter ‘L’. In the 2015/16 tax year, the emergency tax code is 1060L.
Note: If you have the 1060L tax code it doesn’t automatically mean you are on an emergency tax code. For example, if you are eligible for the basic Personal Allowance and have no deductions you may have the same tax code.