Tax codes - the basics

A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.

On this page:

What is a tax code?

A tax code is usually made up of several numbers and a letter, for example: 117L or K497.

If your tax code is a number followed by a letter

  • If you multiply the number in your tax code by ten, you will get the total amount of income you can earn in a year before paying tax.
  • The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor - common tax code letters are explained below.
Common tax code letters and what they mean
Letter Reason for use

L

For people born after 5 April 1948 and eligible for the basic Personal Allowance - 1000L for the 2014 to 15 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 born between 6 April 1938 and 5 April 1948 and eligible for the full Personal Allowance

Y

For people born before 6 April 1938 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% (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 Starter Checklist or provide your employer with relevant information before your first pay day

D0

Is used when all your income is taxed at the higher rate of tax - currently 40% (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 45% (most commonly used for a second job or pension)

NT

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

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 45%, read the section 'Effect on your tax and tax code - if your income is above £150,000'.

Find out more about tax codes if you have several jobs or pensions

Tax when starting, leaving or retiring from work

Check Income Tax rates and allowances for 2014 to 15

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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.

Find out more about tax allowances and reliefs

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Effect on your tax code if your income is above £100,000

Effect on your tax code - if your income is above £100,000

Your tax code takes account of the income-related reduction to the Personal Allowance based on an estimate of your income. HM Revenue & Customs (HMRC) will work out the actual amount of Personal Allowance you are entitled to (if any) when you send in your Self Assessment tax return.

Read more about the Personal Allowance

Read about Self Assessment

Effect on your tax and tax code - if your income is above £150,000

The additional tax rate applies if you have taxable income above £150,000. The rate is 45% from 2014 to 15. Your 2014 to 15 tax code takes into account the 45% additional rate and any 'reliefs and adjustments', for example if you're due tax relief on donations to charity or pension contributions, or if HMRC needs to take account of earlier unpaid tax that you owe.

HMRC will work out how much tax you are actually due to pay when you send in your tax return. This may mean you'll owe some extra tax or you'll be due a refund.

Read about Self Assessment

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How the 'K code' works

If your deductions (untaxed income on which tax is still due) are more than your allowances you'll be given a K code, to ensure you pay tax on the excess. Whereas with other tax codes the number indicates the amount of income you can have tax-free, the number in a K code multiplied by ten broadly indicates how much must be added to your taxable income to take account of the excess untaxed income you received. The tax deducted for each pay period cannot be more than half of your gross pay or pension for that period. If more tax is due you will pay it at a later date.

You might see a K code used if you have:

  • company benefits
  • state benefits
  • tax to pay back from an earlier tax year

When a K code is operated, your tax deduction for each pay period cannot be more than half of your gross pay or pension. Your employer or pension provider restricts the amount of tax deducted using a K code to make sure that you retain a certain amount of take home pay or pension. If more tax is due it will be collected at a later date.

K code example

K497 means:

  • your untaxed income was approximately £4,970 greater than your taxable income
  • as a result, approximately £4,970 must be added to your total taxable income to ensure the right amount of tax is collected
    (The actual calculation is more complex and of course precise - and ensures that the exactly right amount is added to your taxable income.)

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If you're on an emergency tax code

Sometimes your employer or pension provider will have to use an 'emergency' or 'special basis' code until HMRC has worked out what your tax code should be. This can happen if you start a new job and don't have a P45, haven’t completed a Starter Checklist or provided your employer with relevant information before your first pay day. If you don’t you could end up on an emergency code. While you're on an emergency code you'll get the basic Personal Allowance - this may or may not be right for you. Once HMRC has details of your previous income and tax for the tax year, they'll send your employer (and you) your correct tax code. Your employer will deduct the right amount of tax in future and pay you any refund you are due.

Find out more about emergency tax codes

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Where to find your tax code

If you're employed or between jobs

You can find your tax code on your 'PAYE Coding Notice' sent to you by HMRC usually before the start of each tax year. (It may also be sent to you at other times if something has changed - for example, if you've started receiving a new source of income or a new company benefit.)

You'll also find your tax code on your P45 (given to you by your employer when you stop working for them). This is why it's very important to give this to your new employer when you change jobs.

If you've lost your P45 and want to find out your tax code contact HMRC and give them your National Insurance number and tax reference number.

Contact HMRC

If you're starting your first job

If you're starting your first job and therefore don't have a P45 your employer may give you a Starter Checklist to complete or ask you for the information they need to allocate a tax code and work out the tax due on your first pay day. HMRC will then process the information you have provided to your employer and, where necessary, revise your tax code.

If you've paid too much tax, your employer will make the necessary refund. (If the tax year has ended before this is worked out, then HMRC will make the refund.) If you haven't paid enough tax, your tax code can be amended to collect the underpaid tax. This will happen in the current tax year, if there's enough time for your employer or pension payer to apply the revised code or, if not, in a later tax year.

If you get a company or personal pension

You'll find your tax code on your PAYE Coding Notice sent to you by HMRC usually before the start of each tax year. It may also be sent to you at other times if something has changed - for example, if you've started receiving a new source of income or a new company benefit. You'll also find your tax code on notices and pay slips from your pension provider.

If you're enrolled for Self Assessment Online

If you're an employee or get a company or personal pension and are enrolled for Self Assessment Online, you can view PAYE Coding Notices issued since 11 October 2011 online.

Understanding and using Self Assessment Online

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Changes that might affect your tax code

You must keep HMRC informed of any change in your circumstances, for example if:

  • you get married, form a civil partnership, or separate and either of you were born before 6 April 1935
  • you start to receive a second (or third or more) income
  • the amount of untaxed income you get increases or reduces

If you don't let them know you could end up paying the wrong amount of tax.

If HMRC change your tax code, you should receive a PAYE Coding Notice from them. Keep all notice of coding letters for reference in case you have any questions or need to check you are paying the right amount of tax.

Reporting changes that might affect your tax

Married Couple's Allowance

What to do if your tax code is wrong

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More useful links

Working and paying tax - further guidance

Understanding your PAYE Coding Notice

What to do if your tax code is wrong

Introduction to Income Tax

Tax refunds and reclaiming overpaid tax

Personal Allowance

Married Couple's Allowance

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