Are you paying too much tax?

Tax 650Your tax code is used to tell HMRC how much tax you need to pay out of your salary or pension.

Tax codes are usually made up of a series of numbers and a letter. The number is how much income you can earn before you pay tax and is based on the basic Personal Allowance.

For tax year 2019/2020 the allowance is £12,500. This figure (divided by 10) will precede the letter in your code. So, for the 2019/20 financial year, 1250 will be a common number.

The letter indicates your circumstances and how it affects your tax-free Personal Allowance:

  • L: You are under 65 and eligible for the standard tax-free Personal Allowance
  • M and N: Marriage Allowance lets married couples transfer 10% (£1,250) of their Personal Allowance to their spouse. To transfer you must have an annual income of £12,500 or less.
    • M: You are married, and have received 10% of your spouse's personal allowance
    • N: You are married, and have transferred 10% of your personal allowance to your spouse
  • S: Your income or pension is taxed using the rates in Scotland
  • C: Your income or pension is taxed using the rates in Wales
  • T: Your annual income is over £100,000 and your personal allowance has been reduced
  • 0T: You’re given no personal allowance. This happens when you don’t provide your employer with a P45 or enough details for them to work out your tax code, or when your personal allowance has been used up by previous income.
  • BR or D0.
    • BR: You have more than one income or pension, and the additional income from this job or pension is taxed at the basic rate (20%)
    • D0: You are a higher rate tax payer with more than one income or pension, and the additional income from this job or pension is taxed at the higher rate (40%)
  • D1: You are an additional rate tax payer with more than one income or pension, and the additional income from this job or pension is taxed at the additional rate (45%)
  • NT: You do not pay tax
  • K: Your level of untaxed additional income exceeds your Personal Allowance. This could mean you are paying tax you owe from a previous year through your wages or pension, getting State benefits that you need to pay tax on or getting benefits from work, such as a company car
  • W1 and M1: These emergency codes are issued if HMRC does not have enough information about you to send your employer the correct code. These will be updated when your employer has your P45
    • W1 (week): You are paid weekly and your tax is based only on what you are paid in the current pay period, not the whole year
    • M1 (month): You are paid monthly and your tax is based only on what you are paid in the current pay period, not the whole year.

Think you have the wrong tax code?

If you think you are on the wrong tax code and have paid too much tax, you can find out what to do on the Government’s services and information website

source: www.gov.uk/tax-codes

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