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How do Tax Codes work?

How do UK tax codes on payslips work?

Your tax code is a number that tells your employer how much tax to deduct from your pay. It is made up of numbers and letters, and is usually found on your payslip.

The numbers in your tax code represent the amount of your Personal Allowance, which is the amount of income you can earn before you start paying Income Tax. For the 2023-24 tax year, the Personal Allowance is £12,570.

The letter in your tax code tells you how your income is taxed. The most common letter is "L", which means that you are entitled to the standard Personal Allowance and will be taxed at the basic rate of Income Tax (20%).

Other letters can mean different things, such as:

  • "BR": Your income is taxed at the basic rate, but you have no Personal Allowance left.

  • "D0": Your income is taxed at the higher rate of Income Tax (40%).

  • "D1": Your income is taxed at the additional rate of Income Tax (45%).

  • "K": You have taxable benefits, such as a company car.

  • "NT": You have no tax to pay.

How is my tax code calculated?

Your tax code is calculated by HMRC based on your income, deductions, and any other factors that may affect your tax liability. If you have any changes in your circumstances, such as starting a new job or moving to a different country, you will need to inform HMRC so that they can update your tax code.

What should I do if my tax code is wrong?

If you think your tax code is wrong, you should contact HMRC as soon as possible. They will be able to investigate and correct the error.

How can I check my tax code?

You can check your tax code online, or on your payslip. You can also request a Tax Code Notice from HMRC.

What are the consequences of having an incorrect tax code?

If you have an incorrect tax code, it could mean that you are paying too much or too little tax. If you are paying too much tax, you may be able to get a refund from HMRC. If you are paying too little tax, you may have to pay a penalty.

It is important to check your tax code regularly to make sure that it is correct. You can do this by following the steps above.

Payslip tax details and calculator

Here are some additional things to keep in mind about UK tax codes:

  • Your tax code can change during the year, if your circumstances change. For example, if you start a new job or move to a different country.

  • If you are self-employed, you will need to calculate your own tax liability and pay it directly to HMRC.

  • You can use a tax calculator to help you understand how much tax you will pay.

  • There are a number of tax reliefs and allowances available, which can reduce the amount of tax you pay.

If you are unsure about anything related to UK tax codes, please contact us.

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