Tax codes on your payslip may seem confusing, but an incorrect code could mean you’re entitled to a refund running into thousands of pounds.
Don’t overlook the tax code on your payslip (Image: Getty)
The tax codes on your payslip are important in determining the amount of tax deducted from your salary. An error in this code could potentially lead to a refund worth thousands of pounds.
It may be tempting to overlook this code when your wage hits your bank account, but it’s essential to ensure it aligns with your personal circumstances. HMRC determines each person’s code based on their ‘tax-free Personal Allowance’ and the income on which tax hasn’t been paid.
This includes untaxed interest and part-time earnings, as well as the value of benefits like a company car. The Government states that the most prevalent code for individuals with one job or pension is currently ‘1257L’.
The ‘L’ in this code signifies that you’re eligible for the standard tax-free Personal Allowance – the yearly income you can earn before tax applies. This allowance is presently set at £12,570, hence the ‘1257L’ code.
Sharing an example as to how this system works, the UK Government explains: “You’re entitled to the standard tax-free Personal Allowance of £12,570, but you also get medical insurance from your employer. As this is a company benefit it lowers your Personal Allowance and changes your tax code.
“The medical insurance benefit of £1,570 is taken away from your Personal Allowance, leaving you with a tax-free amount of £11,000. This would mean your tax code is 1100L.”
The most common tax code is believed to be ‘1257L’ right now (Image: Getty)
HMRC tax codes explained:
- L: You’re entitled to the standard tax-free Personal Allowance
- M: Marriage Allowance: you’ve received a transfer of 10% of your partner’s Personal Allowance
- N: Marriage Allowance: you’ve transferred 10% of your Personal Allowance to your partner
- T: Your tax code includes other calculations to work out your Personal Allowance
- 0T: Your Personal Allowance has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code
- BR: All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension)
- D0: All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension)
- D1: All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension)
- NT: You’re not paying any tax on this income
- C: Your income or pension is taxed using the rates in Wales
- C0T: Your Personal Allowance (Wales) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code
- CBR: All your income from this job or pension is taxed at the basic rate in Wales (usually used if you’ve got more than one job or pension)
- CD0: All your income from this job or pension is taxed at the higher rate in Wales (usually used if you’ve got more than one job or pension)
- CD1: All your income from this job or pension is taxed at the additional rate in Wales (usually used if you’ve got more than one job or pension)
- S: Your income or pension is taxed using the rates in Scotland
- S0T: Your Personal Allowance (Scotland) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code
- SBR: All your income from this job or pension is taxed at the basic rate in Scotland (usually used if you’ve got more than one job or pension)
- SD0: All your income from this job or pension is taxed at the intermediate rate in Scotland (usually used if you’ve got more than one job or pension)
- SD1: All your income from this job or pension is taxed at the higher rate in Scotland (usually used if you’ve got more than one job or pension)
- SD2: All your income from this job or pension is taxed at the advanced rate in Scotland (usually used if you’ve got more than one job or pension)
- SD3: All your income from this job or pension is taxed at the top rate in Scotland (usually used if you’ve got more than one job or pension)
Furthermore, tax codes with ‘W1’, ‘M1’, or ‘X’ may appear on some pay slips. These are generally indicative of ’emergency situations’ which can occur during life events such as starting a new job, receiving company benefits, or beginning to draw a State Pension.
Spotting a ‘K’ at the start of your tax code also indicates an alternative taxation method, possibly because you’re settling the previous year’s tax through your current income or pension.
Nonetheless, in cases where you have been attributed the wrong tax code, the Government advises: “If you’re on the wrong tax code, you may pay too much or too little tax. You can get a refund or pay the tax you owe once HM Revenue and Customs (HMRC) has your income details for the tax year.”
It then adds: “You cannot get a refund until HMRC get your income details from your employer, pension provider or benefits office. If you’ve changed jobs, give the P45 from your previous job to your new employer. If your previous employer did not give you a P45, ask them for one. This can give HMRC the details they need.”
If you believe you have been taxed incorrectly on your income, the Government provides an online form that may allow you to claim a refund.
Experts at RIFT have previously indicated that the average amount recovered through tax rebates in the UK is £3,000, based on their analysis of average total claims data over four years.
You can check your tax code for the current year here and access the HMRC website here.
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