What Tax Code Should I Be On?

Tax Code

A tax code is a set of letters and numbers assigned to an individual by the HM Revenue and Customs (HMRC) in the UK, which is used to determine the amount of tax that should be withheld from their income.

The code is typically made up of a letter that indicates the type of code, followed by several numbers.

The letter represents the tax band and the numbers indicate the personal allowance an individual is entitled to.

The most common tax code is “BR”, which stands for “basic rate” and is used for individuals with no other sources of income or tax allowances.

Individual & “BR” Tax Code

Individuals who have only one source of income and have no other tax allowances or reliefs will typically have the “BR” tax code.

This code indicates that the individual is only entitled to the standard personal allowance, which is currently £12,570 for the tax year 2020-2021.

Income that falls within this allowance is taxed at the basic rate of 20%, while income above the allowance is taxed at the higher rate of 40%.

Individuals who have more than one source of income or have other tax allowances or reliefs may have a different tax code.

For example, the “NT” code stands for “no tax”, which is used for individuals who have no tax liability for the year. The “OT” code, which stands for “other tax”, is used for individuals who have a tax liability but are not entitled to the standard personal allowance.

Letter “D”

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 higher 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 use your tax code when you complete your self-assessment tax return.

Conclusion

In conclusion, a tax code is a set of letters and numbers assigned by the HM Revenue and Customs (HMRC) in the UK that determines the amount of tax that should be withheld from an individual’s income.

The most common tax code is “BR”, which stands for “basic rate” and is used for individuals with no other sources of income or tax allowances.

Other codes include “NT” for no tax, “OT” for other tax, and “D0” or “D1” for higher tax rates. It’s important to contact the 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 should I be on or any other tax matters, please do not hesitate to get in touch.