Your Tax code
Every person in the UK gets a set amount of money per financial year for which they pay no tax and NI on. This is known as the tax free allowance. Above this amount, people will pay the relevant tax and national insurance.
For example, in the tax year/financial year 2023/2024, every UK resident had £12,570 as their tax free allowance. This is translated into a tax code, in this case 1257L (£10,500 would be 1050L and so on). This would become a standard tax code for that financial year. It allows payroll software and employers to ensure the correct tax free allowance is applied each week (£12,570 broken down over 52 weeks so £241) to their employees – whilst self-employed workers have a tax free allowance, this is calculated through their tax return.
Some workers’ tax code may be altered by HMRC if they owe or are owed tax. For instance, based on the example above, if a tax code was 900L, it would suggest they have a tax free allowance of only £9000 for the year and that in fact they owe HMRC tax. Occasionally, HMRC will issue a K tax code, for example K450, which means they owe a lot of tax and are paying it on more than their income. In this example, they pay tax on £4500 per year more than they earn.
If an employee has more than one job or is claiming a pension, then they will likely be on a BR (basic rate tax code). This allows one employer to provide the tax free allowance and ensure the second employer (or pension provider) doesn’t allow a second amount of tax free allowance, resulting in the worker not paying enough tax and NI.
A Basic rate tax code removes your tax free allowance completely so that if anything, there is an overpayment on tax to HMRC of which they can pay back. If a worker’s employment history is confusing to HMRC’s systems, they may put a worker on a BR tax code to force the worker to contact HMRC to enquire why their tax code has changed.
The only way a tax code can be changed, is through an update directly from HMRC. They send us what is know as a P6 update each week that indicates any changes we should make.
Should you have a query with your tax code or think it is wrong, only HMRC can help you decipher why and potentially make any changes. You can call them on 0300 200 3300.
For example, in the tax year/financial year 2023/2024, every UK resident had £12,570 as their tax free allowance. This is translated into a tax code, in this case 1257L (£10,500 would be 1050L and so on). This would become a standard tax code for that financial year. It allows payroll software and employers to ensure the correct tax free allowance is applied each week (£12,570 broken down over 52 weeks so £241) to their employees – whilst self-employed workers have a tax free allowance, this is calculated through their tax return.
Some workers’ tax code may be altered by HMRC if they owe or are owed tax. For instance, based on the example above, if a tax code was 900L, it would suggest they have a tax free allowance of only £9000 for the year and that in fact they owe HMRC tax. Occasionally, HMRC will issue a K tax code, for example K450, which means they owe a lot of tax and are paying it on more than their income. In this example, they pay tax on £4500 per year more than they earn.
If an employee has more than one job or is claiming a pension, then they will likely be on a BR (basic rate tax code). This allows one employer to provide the tax free allowance and ensure the second employer (or pension provider) doesn’t allow a second amount of tax free allowance, resulting in the worker not paying enough tax and NI.
A Basic rate tax code removes your tax free allowance completely so that if anything, there is an overpayment on tax to HMRC of which they can pay back. If a worker’s employment history is confusing to HMRC’s systems, they may put a worker on a BR tax code to force the worker to contact HMRC to enquire why their tax code has changed.
The only way a tax code can be changed, is through an update directly from HMRC. They send us what is know as a P6 update each week that indicates any changes we should make.
Should you have a query with your tax code or think it is wrong, only HMRC can help you decipher why and potentially make any changes. You can call them on 0300 200 3300.
Updated on: 05/01/2024
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