Tax codes are alphanumeric combinations that are used by HM Revenue and Customs to determine how much income tax should be deducted from your earnings.

If the code is wrong you may end up paying either too much or too little tax in the year. For this reason it is a good idea to check your tax code at the start of each tax year and any time it changes during the year.

The tax code consists of a series of numbers and letters. The numbers generally represent the amount of income you can earn before you start paying taxes, while the letters indicate any special tax conditions or adjustments that apply to your situation.

Here’s a breakdown of the key elements in a typical tax code:

1. Personal Allowance: This is the amount of income you can earn tax-free in a given tax year. In the UK, for example, the standard Personal Allowance for the 2023/2024 tax year is £12,570. Therefore, 1257L will be the tax code used for most people who have only one job or pension in 2023/24.
2. Additional Allowances: Sometimes, individuals are entitled to additional allowances based on specific circumstances. For example, if you’re eligible for the Marriage Allowance you can transfer a portion of your Personal Allowance to your spouse or civil partner, reducing their tax liability.
3. Tax Adjustments: Certain letters in your tax code signify adjustments to your tax calculation. For instance, the letter “L” in the UK indicates that you’re entitled to the standard tax-free allowance. Other letters can indicate different scenarios, such as “BR” for a basic rate taxpayer or “D0” for a higher rate taxpayer.

You can find your tax code:

• On your payslip

• By signing into your personal tax account on HMRC’s website, you can create an account at the following link if you do not already have one set up; https://www.gov.uk/personal-tax-account

• On a ‘Tax Code Notice’ letter from HMRC if you have one

It is important to note that tax codes can be subject to changes based on various factors, including your income level, employment status, and other personal circumstances.

You may be put on an emergency tax code if HMRC does not receive your income details in time after a change in circumstances, for example starting a new job, changing to employed from self-employed or beginning to receive company benefits or the State Pension. Emergency tax codes are temporary and HMRC will usually update the code once they receive your new details.

If you think your tax code is wrong you can contact HMRC and explain why you believe it is wrong and what it should be changed to. If they agree, they will issue you a new tax code and you should see this on your next payslip.

For more information on tax codes or if you have any concerns or questions about your tax code contact us at [email protected]