What is the tax code for?
The government collects Income Tax to fund public services in the U.K. it pays for the Health Service, Education, providing roads and transport services, and for the general running of the country and paying public debt.
For those who earn income either through work or pension then there is a contributory basis required called Income Tax to help fund the country.
Can I earn anything free of Income Tax
As a general principle, everyone is entitled to earn or receive a proportion of pension free of Income Tax by the operation of a Tax Free Allowance,
This tax free amount can be adjusted for various factors such as age or marital status. The standard tax free amount for an individual is £12,570 per annum.
What is the tax code for
The tax code is used by employers and pensions to work out how much Income Tax to deduct from your pay or pension.
How do you get a tax code
HM Revenue and Customs (HMRC) issue them as an instruction on which tax code to use.
This is either by issuing a special instruction which can be issued on a paper form or sometime electronically:
- P2 is issued to individuals
- P6 is issued to employers following the start of the tax year, referred to as a mid year change
- P6B may be issued to the employer following a government announced change as a result of a government budget
- P7X is a general instruction issued to employer following a budget where the change is applied mid year instructing them to adjust tax codes using certain suffix letter types
- P9 is a tax code instruction issued to employers for operation from the beginning of a new tax year – in the U.K. the tax year starts on 6th April annually.
- P9X is a general instruction to employers to adjust the code for certain stipulated tax codes using suffix types
When changing or starting a new job then the tax code is communicated to the new employer either by providing:
- A P45 document issued by your former employer, this will indicate what tax code they were operating and may also indicate your prior gross earnings and tax paid
- If you don’t have a P45 or it is late being issued, by completion of the Starter Checklist by answering the question. The tax code your employer will apply relates to your answer.
What do the numbers represent?
The numbers on the tax code represent quantities of £10.
So the standard tax free amount of £12,570 is represented by the value 1257.
There are many factors that can cause adjustment to the value such as prior year underpayments, benefits, other jobs or income etc. the value can also represent a negative amount by the application of a prefix letter K (called a K code).
Is there a difference between the countries that make up the United Kingdom?
The United Kingdom contains the countries of Great Britain being England Scotland and Wales and the extending to include Northern Ireland.
The Devolved governments of Scotland and Wales have a proportion of control over Income Tax.
Scottish Tax Payers are identified by the application of prefix S.
Welsh Tax Payers are identified by the application of prefix C.
For tax payers in England and Northern Ireland, there is no devolved nation prefix indicator. Equally when an employee starts working even though a Scottish or Welsh tax resident their initial tax code will not have a devolved nation prefix until HMRC identify them as being subject to Scottish or Welsh Income Tax.
What do the letter mean?
We have already covered that tax codes may have a prefix for the devolved UK nations of Scotland and Wales. We will now explore what the other letters indicate.
Some tax codes contain a suffix character which aid employers in knowing what to do when HMRC issue a general P9X or P6X instruction as that instruction may apply to all tax codes containing that character. this is often when tax free amounts are announced by the chancellor in a government budget.
- L – You’re entitled to the standard tax-free Personal Allowance
- M – Marriage Allowance: the tax code has received a transfer of 10% of a partner’s Personal Allowance
- N – Marriage Allowance: the tax code reflects a 10% transfer of the Personal Allowance to a partner
- T – The tax code includes other calculations to work out the Personal Allowance such as benefits or other income
Tax codes with ‘K’ at the beginning mean there is income that is not being taxed another way and it’s worth more than the tax-free allowance. For most people, this happens when they’re:
- paying tax owed from a previous year
- getting benefits that need to be taxed – these can be state benefits or company benefits
Then there are a series of tax codes for special circumstances:
- 0T – the Personal Allowance has already been used, or you’ve started a new job and the starter checklist was not completed by the new starter
- 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
In Scotland the application of D prefix tax codes can be slightly different as Scotland has more tax band rates than the rest of the UK:
- SD0 – the 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 – the 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 – the 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 – the 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)
Employers and pension providers cannot take more than half your pre-tax wages or pension.
What’s the difference between cumulative and week one month one.
If your tax code ends in ‘W1’ or ‘M1’ or ‘X’ you’re on something tat HMRC call an emergency tax code. These can be normal.
You may be put one of these if HMRC does not get your income details in time after a change in circumstances such as:
- a new job
- working for an employer after being self-employed
- getting company benefits or the State Pension
They are temporary. HMRC will usually update your tax code when you or your employer give them your correct details. This can take up to 35 days.
If your change in circumstances means you have not paid the right amount of tax, you’ll stay on the emergency tax code until you’ve paid the correct tax for the year, so they can remain until 5th April and the. The marker disappears in the next tax year.
What does the reference to emergency code refer to – has someone died?
There is no real emergency at all, the term is unusual internal HMRC language. It just means that the tax calculation is being applied to each individual payment and not on a building up cumulative basis. It’s nothing overly to worry about.
At the end of the tax year you may receive a tax refund or a tax bill, but that may happen whether on an emergency tax code or not,
Isn’t it the employers obligation to collect all my tax?
Simply the answer is no. Although the employer or pension company have obligation to collect tax using the tax code instructed by HMRC, there is no guarantee that the full and correct amount of Income Tax is collected. You may have other income that needs to be taken into account, interest from banks, income from dividends, property, benefits etc etc,
The operation of Income Tax via payroll on earnings and pensions is an estimated guess. At the end of the tax year the HMRC will calculate the true position based on the information it has to then compare against the tax paid,
If more tax has been deducted than is due, then a refund may be due for payment.
If less tax has been paid than is due, then the individual may receive a tax bill or have their tax code adjusted to enable the underpayment to be recovered.
Can the tax code be wrong?
Of course, many millions are wrong or just a guess estimate. each persons circumstances can be different and also change.
It is important that individuals check their tax code, especially when changing jobs. If you don’t have a P45 to hand to a new employer, do make sure you complete a starter checklist. Ensure that HMRC are up to date on your address, especially if you move, and also on name changes. The responsibility for informing change is the tax payers. Such changes on employers returns are ignored by HMRC.
If you think your tax code is wrong, you can use the Check your Income Tax online service to:
- update your employment details
- tell HMRC about a change in income that may have affected your tax code
For example, you can:
- add company benefits
- add missing employers or income
- claim employment expenses
- update your estimated taxable income
HMRC may change your tax code as a result of the updates you make in the online service.
PAYadvice.UK 14/4/2025