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Understanding UK tax codes is essential for ensuring you’re taxed correctly. Here’s a straightforward guide to help you decode your tax code.

What is a Tax Code?

A tax code is used by your employer or pension provider to work out how much Income Tax should be taken from your pay or pension.

HM Revenue and Customs (HMRC) assigns this code, which reflects your Personal Allowance – the amount you can earn tax-free each year.

Decoding Your Tax Code

The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year. HMRC calculates this based on your Personal Allowance and any untaxed income you might have.

The letters in your tax code refer to your situation and how it affects your Personal Allowance.

Here’s what some common letters in tax codes mean:

  • L: You’re entitled to the standard tax-free Personal Allowance.
  • M: Marriage Allowance: you’ve received a transfer of 10% of your partner’s Personal Allowance.
  • N: Marriage Allowance: you’ve transferred 10% of your Personal Allowance to your partner.
  • T: Your tax code includes other calculations to work out your Personal Allowance.
  • 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 your income from this job or pension is taxed at the basic rate.
  • D0: All your income from this job or pension is taxed at the higher rate.
  • NT: You’re not paying any tax on this income.

Checking and Updating Your Tax Code

It’s important to check your tax code regularly, especially if your circumstances change.

You can find your tax code on your payslip, P45, or P60, and through your personal tax account on the HMRC website.

If you believe your tax code is incorrect, you should contact HMRC. They can adjust your code if necessary to ensure you’re paying the right amount of tax.

By understanding your tax code, you can take control of your finances and ensure you’re not overpaying or underpaying tax. For more detailed information, you can visit the official GOV.UK guide on tax codes.

Remember, tax codes can seem complex, but they’re just a way for HMRC to communicate with your employer about your tax-free allowance and how much tax you should pay.

Always keep an eye on your tax code and speak to HMRC if you have any doubts or questions.

You can also contact our friendly team for help and advice. Email us at info@crasl.co.uk or call 01728 687000.