In this section:
Your 'PAYE Coding Notice' tells you what your tax code is and how it's worked out. The tax code tells your employer or pension provider what tax-free income you're entitled to (if any) over the tax year and, as a result, how much tax to take off your income before they pay you. This system of collecting tax is called PAYE (Pay As You Earn).
On this page:
Your PAYE Coding Notice entries fall into two key groups which together influence how much tax you will pay on your income.
These are shown as positive amounts and include:
If these are the only entries on your Coding Notice, they are deducted from your taxable income (employment, pension and any other earnings/income) and you pay tax on what's left.
You may also have negative amounts showing on your Coding Notice.
These are taken away from your allowances and reliefs. Items that reduce your tax-free amount may include:
The total value of the items that reduce your tax-free amount is taken away from the total value of your allowances and reliefs in order to correct the balance between the following:
By subtracting the items that reduce your tax-free amount HMRC tries to make sure that you pay the right amount of tax during the tax year.
After the deductions are taken away from your allowances, there are three possibilities.
In this case the amount left is income you can still receive tax-free in this tax year. This amount will be taken away from your overall taxable income and you pay tax on the balance.
In this case you don't have any tax-free allowances to set against your taxable pay for the year - so you pay tax on all of your taxable income.
In this case your allowances are all used up and you will owe tax on the difference between the two. For example, if your allowances are £6,000 and your deductions work out at £6,250 you will owe tax on £250. This amount will be added to your overall taxable income and you'll pay tax on the total proportionately over the year. (HMRC indicates that your allowances are used up and you owe extra tax by giving you a 'K code'.)
The additional rate tax applies if you have taxable income above £150,000. The rate is 45 per cent from 2013-14. Your 2013-14 tax code will take into account the 45 per cent tax rate and any reliefs and deductions, for example if you are due any professional allowances or there are any deductions due.
Your Coding Notice is yours to keep. HMRC tells your employer or pension provider what your tax code is. If you have an agent or tax adviser acting for you, you may need to show them your PAYE Coding Notice as HMRC no longer send out copies to agents or tax advisers.
If you think that any of the information on your PAYE Coding Notice is wrong (for example, because your circumstances or income have changed, or HMRC has made a mistake) please contact HMRC. If the amounts are incorrect you could end up paying too much or too little tax. You'll find the contact details for HMRC on your Coding Notice. You can also search for them online below.
If anything is incorrect HMRC will issue a new Coding Notice and tax code.
Please contact HMRC if you need further explanation of any of the figures on your Coding Notice.