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How do I work out my UK tax code

This is how tax codes are worked out

Step one

Your tax allowances are added up. (In most cases this will just be your Personal Allowance and any Blind Person’s Allowance. However in some cases it may include certain job expenses.)

Step two

Income you’ve not paid tax on (for example untaxed interest or part-time earnings) and any taxable employment benefits are added up.

Step three

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 tax year.

Step four

Broadly speaking, 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.

For example, the tax code 117L means:

  • you are entitled to the basic Personal Allowance
  • £1,170 must be taken away from your total taxable income and you pay tax on what’s left

The tax code spreads your tax-free amount equally over the year so that you get about the same take-home pay or pension each week or month.

 

 

If you have two jobs or pensions, it is likely that all of your second income will be taxed at the basic, higher or additional 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 or pension. If you are due to pay tax at the additional rate of 50 per cent, read the section ‘Effect on your tax and tax code – if your income is above £150,000’.

 

 

Common tax code letters and what they mean

Letter

Reason for use

L

For those eligible for the basic Personal Allowance – 810L for the 2012-13 tax year. It is also used for ’emergency’ tax codes (read more in the section ‘If you’re on an emergency tax code’)

P

For people aged 65 to 74 and eligible for the full Personal Allowance

Y

For people aged 75 or over and eligible for the full Personal Allowance

T

If there are any other items we need to review in your tax code, for example the income-related reduction to the Personal Allowance (read more in the section ‘Effect on your tax code if your income is above £100,000’).

Tax code ‘0T’. See the next table for circumstances when code 0T is applied

K

When your total allowances are less than your total ‘deductions’ – read more in the section ‘How the ‘K code’ works’

Other tax codes

If your tax code has two letters but no number, or is the letter ‘D’ followed by a number, it is normally used where you have two or more sources of income and all of your allowances have been applied to the tax code and income from your main job or pension.

Other tax codes and what they mean

Code

Reason for use

BR

Is used when all your income is taxed at the basic rate – currently 20 per cent (most commonly used for a second job or pension)

0T

Is used when your allowances have been used up or reduced to nil and your income is taxed at the relevant tax rates. May also be used if you’ve started a new job and don’t have a form P45 or haven’t completed a form P46 before your first pay day

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 or pension)

D1

Is used when all your income is taxed at the additional rate of tax – currently 50 per cent (most commonly used for a second job or pension)

NT

Is used when no tax is to be taken from your income or pension

 

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