This guide explains what UK tax codes are and how employers work them out. You can also use the list to check what to do if you think you have the wrong tax code.
TAX CODE CHECKER HMRC: How do I tell if my tax code is correct?
Your employer or your pension provider calculates the tax codes. They use a tax code to work out an amount of Income Tax to deduct from your pay or from your pension.
HM Revenue and Customs inform them which code to use so they collect the correct amount from you. GOV.UK has an online facility for checking Income Tax online for the current year. It will show you:
The tax code list 2020 shows the each code beginning with a number and ending with a letter. Most people who only have one job or pension will currently get the 1250L tax code.
So, how is this number worked out?
The standard personal tax allowance for 2020-21 is £12,500. Hence, HMRC take the first four digits to create a tax code. So, the base number can change at the beginning of each tax year.
The meaning of the numbers in a tax code is the important part. The tax code numbers give specific information to employers and to pension providers. That enables them to calculate how much tax-free income you can get in each tax year.
Note: The UK tax codes letters refer to each separate situation. The letter also affects the Personal Allowance for each individual.
Tax codes 'W1' or 'M1' signify that they are emergency tax codes (see below).
Some people will see a letter 'K' at the beginning. It means you have income that is not getting taxed another way. In this case it would be worth more than the tax-free allowance. As a rule, this happens most when:
Special rules apply to these situations. In these cases it will be your employer or pension provider who takes any tax due. It relates to income not taxed from your wages or pension. This applies even if a different organisation pays the untaxed income to you.
Note: If you are on a K tax code your employer or your pension provider cannot take more than half your pre-tax wages or pension.
There are three main emergency tax codes used in the United Kingdom. The payslip of anyone on an emergency tax code will display either:
Being on an emergency tax rate means you pay a levy on all your income above the basic Personal Allowance. This might happen if you start:
Note: The amount of time you spend on emergency tax codes is a temporary process. You can get help updating a tax code from your employer.
Changing your job means you may get put on an emergency tax code. But, it gets corrected by HM Revenue and Customs. The automatic process takes place after you give some details to your new employer. They will need information about your previous income or pension.
Employers get the information from a P45. But they will ask you to provide the details if you do not have your P45.
There are several other reasons why HM Revenue and Customs update tax codes. It can occur any time you:
The tax code adjustment made by HMRC means you pay the right amount across the year. HM Revenue and Customs will send you a letter or email once they complete the update.
HMRC also inform your employer or pension provider of the changes. Thus, when you get your next payslip you should see:
There are several steps you can take if you think the coding is wrong. When checking your tax code you can:
There may be times to inform HMRC of a change in circumstances for someone else. A typical example would be if you are their appointed tax agent or accountant. In this case, fill in a PAYE Coding Notice query form and state the changes.
List of Tax Codes and What They Mean in United Kingdom