Your tax code is used by your employer or pension provider to work out how much Income Tax to take from your pay or pension.
HM Revenue and Customs (HMRC) will tell them which code to use to collect the right tax.
It is important you are on the right tax code as every year Britons can end up paying more to the taxman than they need to.
Your tax code will normally start with a number and end with a letter – the numbers show how much you can earn before you have to start paying tax.
The tax code for this financial year and the one used for most people who have one job or pension is 1185L.
1185L is a cumulative tax code which means tax calculations are made on your overall year-to-date earnings.
This tax code means you can earn up to £11,850 in 2018/19 without paying tax – this is known as your personal allowance.
The L means you are entitled to the basic personal allowance with income tax dedicated at the usual rate, depending if you’re a basic, higher or additional rate taxpayer.
These are what the other letters in the tax code refer to on your payslip:
- L – You’re entitled to the standard tax-free Personal Allowance
- M – Marriage Allowance: you’ve received a transfer of 10% of your partner’s Personal Allowance
- N – Marriage Allowance: you’ve transferred 10% of your Personal Allowance to your partner
- T – Your tax code includes other calculations to work out your Personal Allowance, for example it’s been reduced because your estimated annual income is more than £100,000
- 0T – Your Personal Allowance has been used up, or you’ve started a new job and your employer doesn’t have the details they need to give you a tax code
- BR – All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension)
- D0 – All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension)
- D1 – All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension)
- NT – You’re not paying any tax on this income
- K – Tax codes with K at the beginning mean you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance
- W1 or M1 – Emergency tax codes
How much has the Personal Allowance increased by for 2018/2019?
The Personal Allowance is the amount of income you can earn in any tax year before you have to start paying income tax.
Last year the tax code was 1150L so you could earn up to £11,500 without being taxed.
The Personal Allowance has increased for the new tax year which means workers will get a pay boost in their packet – the raise is worth around £100 to someone earning around £30,000 a year.
At the higher end of income tax, the threshold at which worker start paying the higher-rate of tax has increased from £45,000 to £46,350.
What is the BR tax code?
A BR (basic rate) code means you are not receiving any personal allowance and you will be paying income tax of 20 percent on all of your income.
It is allocated if you have additional sources of income, like a second job, which has used up all your Personal Allowance.
If you see a BR in your tax code and you do not have a second job, you will need to contact HMRC as soon as you can.
How do I contact HMRC?
These are the numbers of different departments at HMRC:
- Self-Assessment helpline: 0300 200 3310
- Employer helpline: 0300 200 3200
- Income Tax helpline: 0300 200 3300
- National Insurance helpline: 0300 200 3500
- HMRC online services helpdesk: 0300 200 3600
Make sure you have your National Insurance number on hand.