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Tax Codes

What are Tax Codes?

Tax codes are used by employers to calculate the amount of tax (PAYE) that needs to be deducted from your income. This code, which is shown on your payslip, is made up of a series of numbers and usually one letter and corresponds to how much income you may earn before any tax is liable.

If your tax code is a number followed by one letter, such as L or P then you multiply the number by ten to establish your tax free income. So a 1060L tax code indicates a tax free amount of £10,600.

A tax code of BR usually indicates that this is your second job, your tax free allowance is used up by your first job, and you have no tax free allowance in this job.

A tax code which begins with the letter K shows that your deductions exceed the total annual personal tax allowance.

For a more detailed explanation of how tax codes operate, visit the Government information website at https://www.gov.uk/tax-codes.

How do I know if my Tax Code is correct?

When you joined i4, you would either have have completed a New Starter Declaration, which answers a few simple questions about your job situation, or if you have had a previous job, then you would probably have supplied us with a P45 from your previous employment which has your tax code on it.

HMRC sends tax notices to each tax payer, usually around February each year. In addition, you will find the tax code that we use on each of your payslips.

If your tax affairs are simple, it should be easy for you to check whether your tax code is correct. But don’t take it for granted that it is correct.

If your tax affairs are more complex, where for example you have more than one source of income, then you may need to speak to an accountant. We have established an excellent working relationship with an accountancy firm, and will refer you with the greatest of pleasure.

What should you do if you think your Tax Code is wrong?

The best thing to do is contact your tax office directly. There will be an address and phone number on your notice of tax coding. Keep your tax coding notices in a safe place.

If you think that HMRC’s calculations are wrong, challenge them. Send in writing a request for your tax code to be reviewed, together with your reasons and your own calculations, and keep copies of all correspondence.

Self-assessments

Self-assessment taxpayers usually have until December 30 to file their tax returns online if they want the tax they owe to be collected through a change in their tax code. This is possible where the total tax owed is less than £2,000. If you miss this deadline and have received your tax return before October 31, then you are required to complete and return the form by January 31 together with any tax that you owe.

Remember that filing your tax return online is simple and fast, but you must allow time to register with HMRC and receive your activation code.

Tax code elements

The code issued to an individual by HM Revenue and Customs may be any one of the following :

D Prefix Tax Code
The D prefix tax code is normally used to deduct higher rate tax from employees in a second employment. D0 means that all your income from this job or pension is taxed at the higher rate. D1 means that all your income from this job or pension is taxed at the additional rate.

Emergency Tax Code
The emergency tax code is normally used where an employee's correct code number is not known and the code set by the budget is equivalent to the code of a person entitled to the single personal allowance.

M or N suffix Tax Code
These codes indicate an employee who is entitled to the minimum married couple's allowance. M means that you’ve received a transfer of 10% of your partner’s Personal Allowance, N means that you’ve transferred 10% of your Personal Allowance to your partner

K prefix Tax Code
The K code is used to collect income tax on benefits in kind where benefits exceed available allowances . K codes work by adding amounts on to gross pay to arrive at taxable pay (the opposite of a normal tax code which allow for an amount of free pay, thus reducing taxable pay)

L suffix Tax Code
An L suffix tax code indicates an employee who is entitled to the personal allowance.

NT Code
A NT tax code means that No Tax is to be deducted under the PAYE system. NT codes are often used for self-employed individuals and overseas employees who are exempt from paying NIC.'s

0T Code
Your Personal Allowance has been used up, or you’ve started a new job and your employer doesn’t have the details they need to give you a tax code

S prefixTax Code
Your income or pension is taxed using the rates in Scotland.

T suffix Tax Code
A T suffix indicates that the employee is not in any of the other suffix categories and budget changes cannot be dealt with on a group basis. The 'T' effectively stands for a Temporary code and is used until the employee's tax office can establish his or her tax status. Alternatively the employee may be aged over 75 and married, may have another job or self-employment against which part of the personal allowances are set, or simply not wish the employer to know what allowances are comprised in the code.