Understanding UK Tax Codes and Allowances

UK tax codes can seem confusing, but understanding them is crucial for ensuring you’re paying the correct amount of tax. Your tax code determines how much income tax is deducted from your salary, and errors can result in overpaying or underpaying tax. This comprehensive guide explains how UK tax codes work and what allowances you’re entitled to.

What is a Tax Code?

A tax code is used by employers and pension providers to calculate how much income tax to deduct from your pay. It’s based on your tax-free personal allowance and any other allowances or deductions you’re entitled to.

How Tax Codes Work

Tax codes typically consist of:

• Numbers indicating your tax-free allowance
• Letters indicating your tax situation
• Example: 1257L means £12,570 tax-free allowance

Common Tax Code Letters

L – Standard Tax Code

Most common code for people with one job:

• Entitled to standard personal allowance
• No other income or deductions
• Example: 1257L for 2024/25 tax year

M – Marriage Allowance

Receiving Marriage Allowance from spouse:

• Extra £1,260 allowance (2024/25)
• Partner must transfer unused allowance
• Example: 1383M

N – Marriage Allowance Transfer

Transferring Marriage Allowance to spouse:

• Reduced personal allowance
• £1,260 less than standard
• Example: 1131N

T – Other Deductions

HMRC needs to review your tax:

• Complex tax situation
• Multiple income sources
• Benefits in kind

K – Deductions Exceed Allowances

You owe more tax than your allowance covers:

• Company benefits
• State pension
• Tax owed from previous years

BR – Basic Rate

All income taxed at basic rate (20%):

• Second job or pension
• No personal allowance applied
• Used for additional income sources

D0 – Higher Rate

All income taxed at higher rate (40%):

• Additional income for higher earners
• No personal allowance

D1 – Additional Rate

All income taxed at additional rate (45%):

• For very high earners
• Income over £125,140

Personal Allowances for 2024/25

Standard Personal Allowance

£12,570 – tax-free amount for most people

Marriage Allowance

Transfer up to £1,260 to spouse if:

• You earn less than £12,570
• Partner earns between £12,571-£50,270
• Can save up to £252 per year

Blind Person’s Allowance

Additional £2,870 if registered blind

Reduced Personal Allowance

Allowance reduces by £1 for every £2 earned over £100,000:

• Completely lost at £125,140
• Creates effective 60% tax rate
• Consider pension contributions to maintain allowance

Income Tax Bands 2024/25

England, Wales, and Northern Ireland

• Personal Allowance: £0 – £12,570 (0%)
• Basic Rate: £12,571 – £50,270 (20%)
• Higher Rate: £50,271 – £125,140 (40%)
• Additional Rate: Over £125,140 (45%)

Scotland

• Personal Allowance: £0 – £12,570 (0%)
• Starter Rate: £12,571 – £14,876 (19%)
• Basic Rate: £14,877 – £26,561 (20%)
• Intermediate Rate: £26,562 – £43,662 (21%)
• Higher Rate: £43,663 – £75,000 (42%)
• Advanced Rate: £75,001 – £125,140 (45%)
• Top Rate: Over £125,140 (48%)

When Your Tax Code Might Be Wrong

Common Reasons for Incorrect Codes

• Starting a new job
• Having multiple jobs
• Receiving benefits in kind
• Changes in personal circumstances
• Previous year tax adjustments

Signs Your Code May Be Wrong

• Sudden change in take-home pay
• Tax code doesn’t match your situation
• Receiving tax refunds or bills
• Code contains unexpected letters

How to Check Your Tax Code

Where to Find Your Tax Code

• Payslip
• P45 form
• P60 form
• HMRC app or online account
• Tax code notice from HMRC

Using HMRC’s Online Services

Check and update your tax code through:

• Personal Tax Account
• HMRC app
• View current and previous codes
• See how your code is calculated

How to Change Your Tax Code

Contact HMRC If:

• Your code is clearly wrong
• Your circumstances have changed
• You’re paying too much or too little tax
• You have benefits in kind not reflected

Information You’ll Need

• National Insurance number
• Current tax code
• Details of your income sources
• Information about benefits or allowances

Special Situations

Multiple Jobs

Tax codes for additional employment:

• Main job gets personal allowance
• Second job usually gets BR code
• May need manual adjustment

Company Benefits

Benefits in kind affect your code:

• Company car
• Private medical insurance
• Accommodation
• Reported on P11D form

State Pension

Receiving state pension:

• May get K code if total income high
• Personal allowance applied to largest income
• Other pensions may be taxed at basic rate

Emergency Tax Codes

When Emergency Codes Apply

• Starting new job without P45
• Returning to work after break
• Receiving company benefits
• HMRC doesn’t have current information

Common Emergency Codes

• 1257L W1/M1 – Week 1/Month 1 basis
• BR – Basic rate on all income
• D0 – Higher rate on all income

Getting Tax Refunds

When You Might Be Due a Refund

• Wrong tax code during the year
• Leaving job mid-year
• Overpaid through emergency tax
• Claiming allowable expenses

How to Claim

• HMRC usually refunds automatically
• Check Personal Tax Account
• Complete P50 if leaving work
• Submit P87 for expenses