HMRC issue tax codes to employers and pension providers telling them how to calculate the tax to deduct from an individual’s pay or pension. An individual should check and understand their tax code and act if they think it is wrong. Having the correct tax code should prevent an individual from paying too much tax or having an unexpected tax bill.
How to check a tax code?
An individual may (but won’t necessarily) receive a coding notice, form P2, from HMRC. An individual can also find out their code through their personal tax account. As well as the individual’s code, there will be details of how the code has been calculated. An individual’s payslip will show the tax code being used by their employer.
What to do if a tax code is wrong?
An individual can tell HMRC that they think their tax code is wrong by using the online checker here.
Alternatively, an individual can telephone HMRC on 0300 200 3300 (+44 135 535 9022 from outside the UK) or textphone HMRC on 0300 200 3319.
The individual should have their National Insurance number to hand when they phone.
What does an individual’s tax code mean?
Most tax codes start with several numbers and end with a single letter.
The current most common tax code would be 1257L, being a person with the full personal allowance in a year of £12,570.
The number is the individual’s tax-free amount. This is calculated as:
the individual’s personal allowance;
reduced to take into account untaxed income (e.g. from a part-time job, state pension or rental income), employment benefits and coded out tax underpayments from earlier years;
increased for other tax-free allowances such as the blind person’s allowance and employment expenses; and
with the last digit removed.
The letter does not have any bearing on the calculation of an individual’s tax. It is simply a way of HMRC easily identifying particular types of taxpayer.
A list of what the letters mean can be found here.
If your tax code has an W1, M1 or X at the end, these are emergency tax codes. This means that you are taxed on all income above the basic personal allowance. These tax codes are usually used when starting a new job, or if you have started working after being self employed.