| Index »TAX CODES
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| TAX CODES
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| A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.
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| What Is A Tax Code?
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| A tax code is usually made up of one letter and several numbers, for example: 117L or K497.
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| If your tax code is a number followed by a letter
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if you multiply the number in your tax code by 10, you'll get the total amount of income you can earn in a year before paying tax
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the letter shows how the number should be adjusted following any changes to allowances announced by the
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| Common Tax Code Letters And What They Mean
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| L - for those eligible for the basic personal allowance (this is also used as an emergency tax code - Find more under the section 'Emergency tax code')is used if you are eligible for the basic personal allowance
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| P - is used if you are aged 65 to 74 and eligible for the full personal allowance
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| V - is used if you are aged 65 to 74, eligible for the full personal allowance and the full married couple's allowance (for those born before 6 April 1935 and aged under 75) and estimated to be liable at the basic rate of tax
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| Y - is used if you are aged 75 or over and eligible for the full personal allowance
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| T - is used if there are any other items HM Revenue & Customs (HMRC) needs to review in your tax code, or if you ask HMRC not to use any of the other tax code letters listed above
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| K - is used when your total allowances are less than your total 'deductions' (read more under 'How the K code works')
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| Other Tax Codes |
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| If your tax code has two letters but no number, or is the letter 'D' followed by a zero, it normally indicates that you have two or more sources of income and that all of your allowances have been applied to the tax code and income from your main job.
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| BR - is used when all your income is taxed at the basic rate - currently 22 per cent (most commonly used for a second job)
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| D0 - is used when all your income is taxed at the higher rate of tax - currently 40 per cent (most commonly used for a second job)
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| NT - is used when no tax is to be taken from your income or pension
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| (If you have two jobs, it is likely that all of your second income will be taxed at the basic or higher rate - depending on how much you earn. This is because all of your allowances will have been used against the income from your main job.)
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| If you have two jobs, it is likely that all of your second income will be taxed at the basic or higher rate - depending on how much you earn. This is because all of your allowances will have been used against the income from your main job.
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| If Your Tax Code Is A 'K' Followed By A Number |
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| If your tax code is a 'K' code - for example, K497 - the number indicates how much must be added to your taxable income.
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| How The 'K code' works |
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| If your deductions (untaxed income on which tax is still due) are more than your allowances you'll be given a K code, to ensure you pay tax on the excess. The excess tax due is divided by 10 and added to the letter K. So, whereas with other tax codes the number indicates the amount of income you can have tax-free, the number in a K code indicates how much must be added to your taxable income.
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| K Code Example |
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| K497 means:
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Your untaxed income was £4,970 greater than your tax-free allowances |
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As a result, £4,970 must be added to your total taxable income to ensure the right amount of tax is collected |
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| Emergency Tax Code
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| Your employer will use an emergency tax code:
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When you start a new job and your pay is above the PAYE threshold |
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If you don't give your employer a P45 when starting a new job |
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If you declare on a P46 that this is your only or main job |
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When your employer has not received a tax code notice |
| An emergency tax code is also used in certain special cases, for example if you give your employer a P45 after 24 May but it applies to a previous year. If you have paid too much tax under this temporary code, you will get a refund.
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| Changes That Might Affect Your Tax Code
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| You must keep HMRC informed of any change in your circumstances, for example if:
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You get married, form a civil partnership or separate and either of you were born before 6 April 1935 |
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You start to receive a second income |
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The amount of untaxed income you get increases or reduces
If you do not do this you could end up paying the wrong amount of tax. |
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| When The Tax Code Changes
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| When HMRC changes your tax code, you should receive a 'notice of coding' from your Tax Office. Keep all notice of coding letters for reference in case you have any questions or need to check you are paying the right level of tax. A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.
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| How Tax Codes Are Worked Out
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Your tax allowances are added up (in most cases this will just be your personal allowance and any blind person's allowance, in some cases it may include certain job expenses). |
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Income you've not paid tax on (for example untaxed interest or part-time earnings) and any taxable employment benefits are added up. |
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The total amount of income you've not paid any tax on (called 'deductions') is taken away from the total amount of tax allowances. The amount you are left with is the total of tax-free income you are allowed in a year. |
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To arrive at your tax code the amount of tax-free income you are left with is divided by 10 and added to the letter which fits your circumstances. |
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| Example:
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| The tax code 117L means:
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you are entitled to the basic personal allowance
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£1,170 must be taken away from your total taxable income
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