Tax Codes And Key Tax Dates

Currently, around 30m people suffer income tax each year, paying an average of just over £5,000 apiece. Around 3m of these pay something at the higher rates of 40% and 50%, but they account for over half of all income tax collected.

Tax Codes

Most of this income tax is collected through the PAYE system. To do this, HM Revenue & Customs will issue your employer with a tax code. This code tells your employer how much tax to take off your salary. It's worth looking into the calculation of your tax code to make sure there are no obvious mistakes. You can see your tax code on your pay slip or the P45 form you get when you leave a job. You should also get a coding notice sent to you by HM Revenue & Customs which illustrates how it is calculated.

Your tax code will look something like 489L or K117.

Let's deal with the letter first.

• L is used if you're eligible for the basic personal allowance.
• P and V are used if you're 65 to 74 and eligible for the full personal allowance. The latter means you are also entitled to a full married couples allowance.
• Y is used of you're 75 or over eligible for the full personal allowance.
• T is used if there are any other items HM Revenue & Customs need to review in your tax code.
• K is used if your tax deductions are more than your total allowances.
• BR means all your income is to be taxed at the basic rate.

The number represents one-tenth of the annual amount of tax-free allowance you'll get. So if your tax code is 489L, your employer will take off £4,890 off your annual salary before calculating the tax to be paid over. If you have a K117 code, then they would add £1,170 to your salary before making any calculations.

As well as your personal allowance, you could receive tax relief for some of the following via your tax code:

• Loan interest
• Job expenses and professional subscriptions
• Personal pension and Gift Aid relief (if you pay tax at the higher rate)

Common benefits that you might receive that could be taxed via your tax code include:

• Car and car fuel benefit
• Employer's loan benefit
• Medical insurance benefit
• Untaxed income e.g. rent
• Underpaid tax from the previous year (if you owe less than £2,000 and submit your tax return by 30 September, or 30 December if you do it online, you can effectively pay it off in monthly installments via a higher tax code rather having to pay it over in one lump sum.)

This guide from HM Revenue & Customs explains tax codes in detail.

Key Tax Dates

Please see the HMRC website for key dates relating to income tax.