If not enough information about you is available to the tax office, an emergency tax code will be used until the appropriate code can be applied.
Finding your tax code
When you get paid you will find the applied tax code amongst the information on the actual wage-slip. The code will be comprised of a combination of letters and numbers which you will need to decipher to check if it is correct
Breaking down tax codes
The letters in your tax code will indicate which tax allowances you are receiving:
- L: Often used for emergency codes, along with anyone born after 5th April 1948, who is eligible for the personal allowance
- P: For those born between 6th April 1938 - 5th April 1948 and entitled to full 'age-related' allowance
- Y: For people born before 6th April 1938 and entitled to full age-related allowance.
- T: Has a few reasons for use; i) You or your partner were born before 6/4/1938, and there is a reduced age-related allowance in the code ii) You requested it as you do not want to reveal your actual code
- K: Used in instances where your total tax allowances are less than the deductions to be taken away. If you have untaxable income from benefits, pensions, social security et al. you'll probably be assigned a code using 'K'
- BR: This is used is you have no allowances and tax is to be deducted as the basic rate. This is likely to apply if you have more than one job or pension, and in instances where you've started a new job and your employer is waiting for the correct code
- NT: This code will be used (without numbers), if you do not have to pay any tax
- DO: Used if all of your income amounts to it being taxed at the 40% rate
- OT: Tax will be paid at the basic or higher rate, depending on you salary, as no allowances are applicable
The numbers in the tax code inform your employer as to the tax free income you're entitled to each tax year. It'll be calculated based on your personal allowance, which is essentially the amount you can earn before you start paying tax. For example '1060L' is a common tax code for people born after 5th April 1938. The '1060' refers to a personal allowance of £10,600. To calculate how much of a personal allowance has been given to you, you simply multiply the number in the tax code by ten (1060 x 10 = 10,600)
Emergency Tax Codes
If an emergency tax code is applied, it will assume that you are only entitled to the basic personal allowance; excluding any other reliefs you may be entitled to. As a result you may pay too much or too little tax until the proper code is issued.
Once the proper code has been issued, you should notice a credit on your wage-slip for any overpaid tax, whilst HMRC will inform you of any underpaid tax, giving to option to settle the debt in full, or have installments taken from your future wage-slips to clear the balance.