As we proceed into the new tax year, it’s a reminder to check your Tax Code! HMRC published updated codes for this tax year on the 6th April 2021.
According to research carried out by Intuit QuickBooks UK in 2019, in the previous year approximately 14.3 million people across the UK paid too much tax as a result of being on the wrong tax code. HMRC sometimes makes errors with deductions, or other elements of their calculation such as estimates of State Pension or of interest on savings that are part of your Tax Code calculation. So, what does your tax code mean?
Your tax code will normally start with a number and end with a letter. The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year. So, how are the numbers worked out? First, HMRC works out your tax-free Personal Allowance. Second, income that you have not paid tax on (such as untaxed interest or part-time earnings) and the value of any benefits from your employment (such as a company car) are added up. Third, the income that you have not paid tax on is taken away from your Personal Allowance. What’s left is the tax-free income, if any, you’re allowed in a tax year. Fourth, the last digit in the tax-free income amount is removed.
Next, the letters:-
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 in order 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
S: Your income or pension is taxed using the rates in Scotland
S0T: 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
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 top rate in Scotland (usually used if you’ve got more than one job or pension)
C: Your income or pension is taxed using the rates in Wales
C0T: 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
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)
K: Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance.
We suggest that you take nothing for ‘granted’! Check that the numbers are correct, especially if they are figures that HMRC has had to estimate. And you can always check your Income Tax for the current year at https://www.gov.uk/check-income-tax-current-year.
NB The notes above are necessarily brief and only cover some of the main points. If you think any of the above may apply to you, we recommend that you take timely advice from an appropriate professional adviser.
And remember, do not hesitate to contact us to discuss your financial planning needs. Reviews are part of our added-value services for our clients – we are here to help.
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