One of the most important things to know about on your payslip is your tax code.
Tax codes are used to help your employer work out how much income tax should be deducted from your salary.
Helpfully, each payslip you receive will have it listed (usually at the top right corner). They usually start with a number and end with a letter.
So what does this mysterious number represent?
What does a tax code mean?
The number in the tax code tells your employer how much Personal Allowance you are allowed. If you’d like to know more about tax and the Personal Allowance, read the related blog post on income tax.
For example, most people will have the numbers “1250” in their tax code, representing the standard tax-free Personal Allowance of £12,500.
Any adjustments to your Personal Allowance are worked out by HMRC, and they will let your employer know. HMRC provides details here about how they work any adjustments out.
The letters that follow the numbers usually reflect any situation which changes your personal allowance.
For example, it may reflect changes due to a Marriage Allowance, or any other jobs you may hold at the same time.
They may also be emergency tax codes which are used temporarily while HMRC awaits some information from your employer.
Again, a full list of this information is provided on their website.
What are some common tax codes?
| L | You’re entitled to a Personal Allowance, above which you’re charged at the basic rate of tax. |
| 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. You will be charged tax on all earnings. |
| BR | All your income from this job is taxed at the basic rate (usually used if you’ve got more than one job e.g. a separate employee number for locum or bank shifts). |
| D0 | All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job e.g. a separate employee number for locum or bank shifts). |
| C | Your income or pension is taxed using the rates in Wales (currently the same as the rates in England). |
| S | Your income or pension is taxed using the rates in Scotland. |
How do I check and correct my tax code?
It’s really important that you check your tax code and ensure it is correct, as it may result in you paying too much or too little tax. More information on how this can be done is provided by HMRC. Usually, your employer will do this automatically.
HMRC also helpfully provides a service where you can create an online account with them and submit information yourself. The online account is also extremely useful in viewing summaries of your income tax payments, National Insurance payments and see estimates of future payments.