A tax code is a set of letters and numbers assigned to an individual by HMRC in the UK, which is used to determine the amount of tax that should be withheld from an individual’s income.
The letter represents the tax band and the numbers indicate the personal allowance an individual is entitled to.
The numbers represent the amount of tax-free personal allowance an individual is entitled to (with the number multiplied by 10 to give the allowance). The letter indicates the individual’s circumstances and how the allowance should be applied.
The standard tax code for most employees is 1257L, which reflects the current personal allowance of £12,570 (frozen until April 2028).
Individuals who have only one source of income will typically have the standard tax code (currently 1257L), provided they are entitled to the full personal allowance.
The “BR” tax code does not mean “basic rate allowance”. Instead, it means that all income from that particular employment is taxed at the basic rate of 20%, with no personal allowance given in that job. It is commonly used where an individual has a second job or additional pension and their personal allowance is being used elsewhere.
The personal allowance is currently £12,570. Income above this allowance is taxed at 20%, 40% or 45% depending on the level of total taxable income.
Individuals who have more than one source of income or have other tax adjustments may have a different tax code.
For example, the “NT” code stands for “no tax”, which is used where no tax should be deducted from that employment. The “0T” code (zero T) is used where no personal allowance is allocated to that job and tax is deducted at the appropriate marginal rates.
Individuals who are eligible for the higher rate of tax, which is currently 40%, will typically have a tax code that starts with the letter “D”.
For example, the “D0” code indicates that the individual is entitled to the standard personal allowance but has additional income that is taxed at the higher rate.
The “D1” code indicates that the individual is not entitled to the standard personal allowance and all of their income is taxed at the additional rate.
It’s worth noting that if you’re employed, your employer will use your tax code to calculate how much tax to deduct from your pay. If you’re self-employed, you’ll need to consider your tax code when you complete your self-assessment tax return.
In conclusion, a tax code is a set of letters and numbers assigned by HMRC in the UK that determines the amount of tax that should be withheld from an individual’s income.
The most common tax code for employees is currently 1257L, reflecting the standard personal allowance of £12,570.
Other codes include “BR” (basic rate applied to all income in that employment), “NT” (no tax), “0T” (no personal allowance allocated), and “D0” or “D1” for higher and additional rate taxation.
It’s important to contact HMRC or speak with a tax professional to determine the correct tax code for your situation.
Next Steps
If you have any general queries about what tax code you should be on or any other tax matters, please do not hesitate to get in touch.
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