News

All employees and people with a private pension have a tax code.  It is used by your employer or pension provider to work out how much income tax to deduct from your salary or pension.  HMRC will advise your employer or pension provider which code to use.

HMRC expects you to check your code and ensure that it is correct.  An incorrect code could lead to too much or too little tax being deducted and, in some cases, an unexpected tax bill.

How to check your Tax Code

There are a number of ways of finding your tax code:

• You can check online by logging into your government gateway
• Check via the HMRC app
• Look on your latest payslip
• You may get a P2 (Tax Code Notice) from HMRC through the post

What does the tax code mean?

Your code will be made up of a series of numbers and letters. 1257L is the main code currently used for people who have one job or pension.  It means that you receive £12570 of income tax free before any tax is deducted.

If you have a second job or pension this will likely have a BR code (all the income will be taxed at the basic rate – currently 20%).

Most codes are operated on a cumulative basis so your salary or pension along with tax paid and tax free earnings to date are taken into account each payday when calculating the tax to be deducted.  This may result in variations in the amount of tax deducted each month.

If you have an ‘X’, ‘W1’ or ‘M1’ after your code (1257L X or 1257L M1) your code is not being operated on a cumulative basis and you could end up with an underpayment or overpayment at the end of the year.  HMRC will usually issue a ‘Month/Week 1’ code (X) if you change jobs or start a job part way through the tax year.  It is usually operated on a temporary basis but if you are still on this code at the end of the tax year you should check that you have paid the correct amount of tax and contact HMRC if necessary.

‘K’ Codes

If your code starts with a ‘K’ it normally means you have other income (such a property rental or pension) that is above your tax free allowance (currently £12570) that is not being taxed.  A ‘K’ code could significantly increase the amount of tax deducted but employers and pension providers cannot take more than 50% of your gross earnings in tax.  If you have a ‘K’ code it is important you check it and understand why it has been issued.  Seek professional advice if you are not sure.

What to do if you think your code is incorrect

You can use the ‘Check your Income Tax online Service’ to let HMRC know of changes required.  For example:

• Update your employment details
• Claim employment expenses
• Advise HMRC of estimated taxable income

If you are not able to use the online service you should contact HMRC or speak to your accountant.

HMRC will issue an amended code if appropriate after reviewing the updates you make and you should be advised.  They will also inform your employer or pension provider who should operate the new code immediately.

Please contact us for further advice or assistance.