Tax codes

In this section:

Tax codes - the basics
Understanding your PAYE Coding Notice
Emergency tax codes
Company benefits in your tax code
Expense payments in your tax code
Pensions, state benefits and your tax code
Other income taxed through your tax code
How underpayments of tax affect your tax code
If you have more than one tax code
What to do if your tax code is wrong

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Other income taxed through your tax code

Other income taxed through your tax code

If you have untaxed income - such as rental or investment income - and you already pay some tax through the PAYE (Pay As You Earn) system you may be able to add it to your employment or pension income and pay tax on it through your tax code. If we know you're getting a State Pension or taxable state benefits we'll automatically arrange for you to pay tax on them this way.

What counts as 'other income'?

Other income that we may be able to tax through your tax code includes:

some income from property
untaxed bank or building society interest (the first 20 per cent is usually deducted before you receive payment but you'll owe a further 20 per cent if you pay higher rate tax)
dividend income if you pay higher rate tax (10 per cent is deducted before payment but you'll owe a further 22.5 per cent if you pay higher rate tax)
income from casual earnings, eg tips or commission
some self-employment earnings

If you have other income that is not shown above please contact your Tax Office for advice.

Contact your Tax Office

How we deal with other income in your tax code

We add up all your untaxed income - your other income as described above plus the value of any taxable company benefits or state benefits that you get - and take it away as 'deductions' from the total value of your allowances and reliefs. The amount you're left with is the tax-free income you receive in the current year.

Example

You are entitled to the basic Personal Allowance of £5,435 and you have untaxed building society interest of £500 and property income of £1,500:

your total allowances and reliefs are £5,435 - your Personal Allowance
your total 'deductions' are £2,000 made up of £500 plus £1,500
your total tax-free amount is £3,435 which is £5,435 less £2,000

So, you have tax-free income of £3,435. This is shown in your tax code as 343L.

We'll usually send you a 'PAYE Coding Notice' that explains exactly how we have dealt with your untaxed income in your tax code.

Find out how tax codes work

Other income - entries on your PAYE Coding Notice

Your PAYE Coding Notice is sent to you before the start of each tax year or if your tax code changes. Entries it might include for other income to be taxed through PAYE are listed below.

Property income

Any rental income (less expenses) not covered by the Rent a Room scheme is taxable, but you receive it without tax taken off so it needs to appear here.

Interest without tax taken off

Our estimate of untaxed interest we expect you to receive shows here to make sure you pay tax on this income.

Savings income taxable at 40 per cent

Savings income is taxed at 20 per cent before you get it and dividends (income from shares) at 10 per cent. If you're a higher rate tax payer you will owe the difference between 20 per cent and 40 per cent on savings income, and between 10 per cent and 32.5 per cent on dividend income. The amount shown on your coding notice under this heading has the effect of collecting the difference in both cases.

Other earnings/other income (not earnings)

Our estimate of other earnings/income we expect you to receive is included here so that we collect the right amount of tax due on this income.

Commission

Our estimate of the amount of commission you'll earn appears here so that you can pay tax on it.

Tips

Our estimate of the amount we think you will earn in tips this year shows here to take care of the tax due.

Limits on including other income in your tax code

If you're an employee or receive a company or personal pension you can receive up to £2,500 extra income in a year and still pay tax on it through your tax code. For amounts greater than £2,500 you'll have to complete a tax return and pay tax through Self Assessment.

If you don't want to pay tax on your other income through your tax code you can ask us to stop collecting it this way and pay through Self Assessment instead.

For more information on the different ways of paying tax on your other income follow the link below.

Ways you pay Income Tax

If your other income changes significantly

If there is a significant change in your other income you should contact your Tax Office right away so that we can work out whether you need to pay extra or less tax. By contacting us early you can avoid paying too much tax or owing tax at the end of the year.

Find out about reporting changes that might affect your tax

If our estimate is wrong

If at the end of the tax year it turns out that the amount of other income you received is greater than estimated we'll ask you to pay tax on the difference. If it's less, you'll get a refund.

Find out more about tax refunds

What to do if you think your tax code is wrong