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What Is a Personal Tax Code?

22nd August, 2023

Personal tax can be difficult to understand. You may see your personal tax code and not understand what it means and how it affects you – but we are here to help you.

Read on to learn more about personal tax codes, and to learn what the letters mean in your personal tax code.

In this tax guide, we’ll also be exploring how to check your personal tax code, when your personal tax code may change, and what happens to your personal tax code when you get married.


Personal Tax Code: A Definition

Tax code allowances determine your tax-free amount of employment income. This reduces the amount of employment income you pay tax on, meaning you receive tax relief through your tax code.

The amount of tax-free income you receive per year is referred to as your Personal Allowance. Factors such as your age and income can impact your Personal Allowance.

You may be wondering what the letters on your tax code mean. The letter section of your code demonstrates a change to your code depending on your circumstances. Some common tax codes and what they mean include:

  • L – this is used if you have the basic Personal Allowance and are under the age of 65.
  • K – this is used if you have other income not being tax at source such as company benefits and rental income which is greater than your tax-free Personal Allowance.
  • BR – this refers to being taxed at the basic rate which is set at 20% of your taxable income. You will likely have this code if you have a second job.
  • Y – this is used if you are older than 75, and you have the maximum Personal allowance.
  • DO – this is used to tax all of your income from the employment at the higher tax rate (40%). This is usually issued if you are a higher-rate taxpayer and have more than one job.
  • NT – this means ‘not taxable’ – your income can not be taxed.

Emergency tax codes include W1, M1 and X – this means you will pay tax on your income above the tax-free threshold.


How to Check Your Tax Code

It’s important that you check your tax code is correct – the tax office/ HMRC expects you to inform them if you believe your tax code is incorrect or if your circumstances change.

Tax codes typically consist of three or four numbers and a letter (for example, 2468K). You can find your tax code on your payslip, or on the government website if you set up an online personal tax account. You can also check your tax code on letters or emails from HM Revenue & Customs, or by contacting HMRC directly.

Your code reflects the amount you are entitled to tax-free per year. In the instance of a wrong tax code, you may be eligible for a tax refund/ tax rebate – which means money back into your account, or a reduction in your tax.

At Haggards Crowther, we can ensure that you are paying the correct amount of tax per year, and help you to receive any tax back that is owed to you.


When Would Your Tax Code Change?

There are several reasons why your tax code may change. You’ll usually be issued with a new tax code at the start of a new tax year – both you and your employer will be told your new tax code. It will be provided on a P2 notice of coding, either online or via post depending on your communication preferences.

If you have a standard tax code, you usually won’t be given a P2. You or your employer can’t change your tax code – only HMRC can issue a new tax code. In some cases, you’ll need to contact HMRC to alter your tax code if your circumstances change.


Does My Tax Code Change If I’m Married?

It depends – your and your spouse’s tax codes will change when you get married and claim Marriage Allowance (also known as Marriage Tax Allowance).

Once you are married or in a civil partnership, one of you may transfer up to £1,260 of your Personal Allowance to the other, which is just over 10% of the basic Personal Allowance (£12,570). This will reduce tax by up to £252 per tax year.

If you share your Personal Allowance with your spouse, you will have an N code. If you are receiving Marriage Allowance, your code will change to M – showing to yourself, your employer and the tax office that you are in receipt of Marriage Allowance.

20% is given as a reduction of their tax bill of the money transferred to your spouse as part of Marriage Allowance. This is a different process from Personal Allowance – Personal Allowance is deducted from taxable income before the tax is calculated.


Get Help With Your Personal Tax Today

At Haggards Crowther, we understand that personal tax can be a challenging subject. However you have acquired your wealth, you deserve to keep hold of as much of it as possible.

Whether you’ve accrued your wealth through income (pure salary), gains from property assets, a portfolio of mixed assets or a range of investments, we can help you deal with personal tax and provide you with the support you need.

We can help you to build legitimate tax strategies to help you offset gains and losses, and invest in the most tax-efficient way.

Our team of dedicated experts can work with you to help you understand the ins and outs of your personal tax situation, including what your tax code means. We can present you with effective options for tax mitigation, whether it be for the tax year or in the longer term.

Contact us today to learn more about how we can help you, or to get started with our effective tax advice, planning and strategies.