logologologologo
  • About You
    • Building Wealth
    • Managing Wealth
    • Estate Planning & Later Life
  • About Us
    • Our People
    • Corporate Chartered Status
    • Awards
    • Charity and Sponsorship
  • Financial Services For You
    • Investment Planning
    • Tax Planning
    • Pensions and Retirement Planning
    • Inheritance Tax, Trust & Estate Planning and Later Life
  • News
✕
get-in-touch
A Great Year – Springfield Top Rated Financial Advisers
October 9, 2019
building-wealth
Pension Death Benefits
October 29, 2019

Decoding Tax Codes

October 29, 2019
accounting-balance-banking-159804

Tax codes are issued by HM Revenue and Customs (HMRC) and used by employers and pension companies to deduct income tax due. Provided that HMRC has all the information it needs when it issues a tax code, the right amount of tax should be deducted over the course of the tax year. However, if your tax code is wrong, you may be paying too much, or too little tax. It is therefore important to understand your tax code, ensure it is correct, and to rectify things if not.

How is your tax code calculated?

Tax years run from 6th April until 5th April the next year. HMRC looks at your different sources of taxable income (e.g. salary, pension, income from property, savings and investments) over a tax year and, if your total taxable income is above the personal allowance, seeks to collect income tax from you.

It is likely you will have a different tax code for each source of income. The tax code is a combination of numbers and letters. The number represents your tax free allowance. The table below explains the letters;

Letter codeDescription
BRTells your employer to deduct basic rate, 20% tax on all income
D0Tells your employer to deduct 40% tax on all income
D1Tells your employer to deduct 45% tax on all income
K – at the start of your tax codeTells your employer to add this amount to your taxable pay
LTells you employer to deduct tax at the basic, higher and additional rate on the amount of taxable income once your tax-free allowance has been deducted
MMeans you have received a transfer of 10% of your partner’s personal allowance
NMeans you have transferred 10% of your personal allowance to your partner
NTMeans you are not paying any tax on this income
S – at the start of your tax codeTells your employer to deduct tax based on the tax bands applicable in Scotland
TYour tax code includes other calculations to work out your personal allowance; for example, this could be because your estimated annual income is more than £100,000
0TYour personal allowance has been used up, or you’ve started a new job and your new employer didn’t have the details to give you a tax code
W1 or M1You are being taxed on an ‘emergency’ basis e.g. while your employer obtains details of your earnings and tax from a previous job

In the simplest case, an individual will have a tax code based around the full tax-free personal allowance of £12,500 (2019/20). HMRC knocks off the final digit and adds a letter code to give information about how much tax to deduct. The most common tax code in 2019/20 will be 1250L. The letter L tells the employer to charge tax at the basic, higher or additional rate depending on an individual’s income. If everyone’s tax affairs were straightforward, everyone would have a tax code of 1250L and everyone would pay the right amount of tax each year without the need for end-year adjustments, filling in tax returns etc. However, life is rarely that simple.

Checking your tax code

Usually, you can find your tax code on your payslip or ‘notice of coding’ issued by HMRC. If you have registered with HMRC for an online tax account, you should also be able to see your tax coding notice online.

HMRC offers an online service you can use to check if you are paying the correct amount of tax (you will need to sign up for a ‘Government Gateway’ account to be able to use this service). It can be found at: https://www.gov.uk/check-income-tax-current-year https://www.gov.uk/check-income-tax-current-year

For people with higher incomes or more complex tax situations, it is advisable to seek expert help from a financial adviser or accountant.

For further information or to arrange an initial no-obligation consultation at our offices or another mutually convenient location, please telephone us on 01772 729 742, or alternatively, simply fill out our online enquiry form and we will give you a call to discuss your requirements.

Share
0

Related posts

Official_portrait_of_Rishi_Sunak_crop_2
March 28, 2022

The Spring Statement 2022; A Quick Breakdown


Read more
_YPS9820
January 28, 2022

Ailsa steps up to become a new Chair


Read more
_YPS9820
October 12, 2021

SOLLA Success at Springfield!


Read more

Recent Posts

  • The Spring Statement 2022; A Quick Breakdown
  • Ailsa steps up to become a new Chair
  • SOLLA Success at Springfield!
  • Results of Springfield Financial charity 10 cycling event
  • Springfield’s Renewal of Corporate Chartered Financial Planners Status 2021

Archives

July 2022
MTWTFSS
 123
45678910
11121314151617
18192021222324
25262728293031
« Mar    

Legal Policies

  • Cookie Policy
  • Privacy Policy
  • Financial Conduct

    © 2021 Springfield Financial Services
        We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
        Cookie SettingsAccept All
        Manage consent

        Privacy Overview

        This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
        Necessary
        Always Enabled
        Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
        CookieDurationDescription
        cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
        cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
        cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
        cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
        cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
        viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
        Functional
        Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
        Performance
        Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
        Analytics
        Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
        Advertisement
        Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
        Others
        Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
        SAVE & ACCEPT