How tax codes are composed

A tax code is used by your employer, payroll administration (SME) or pension provider to calculate how much tax you have to withhold from your wages or pension. If you use the wrong code, you could end up paying too much or worse, not enough.

For example, a tax code can consist of several number and letter combinations; 115L or K453.

If your code is followed by a letter, multiply the number in your code by ten so you know how much you can earn before you are taxed.

Also, different tax codes may have two letters and no digits OR D followed by a zero ‘0’ – this is normally used when you have two or more sources of income and have already used up all of your allowance or tax credit with one of your employers. For example, the BR tax code is most commonly used for a second job or retirement and is currently taxed at 20 percent.

How do I know if I have the correct tax code?

You will normally find your code on your P45 (which you get from your employer when you stop working), P60 at the end of the fiscal year or on payslips you get from your employer. That is why it is very important to give this to your new employer when you change jobs.

If you’ve lost your P45 and want to know your code, contact your IRS and provide your social security number and tax reference number.

What happens if I am under the BR tax code but only have one job?

Sometimes your employer, payroll or pension payer will need to use an “emergency” or “special base” code until they know what your correct code should be. This can happen if you start a new job and don’t provide P45. While you have an emergency code, you will receive the basic Personal Allowance. If you have paid too much tax under the emergency code, you will get a refund. We recommend that you contact HMRC with the tax reference code given to you by the company you paid the tax with so that you can then claim it back and your new employer will receive the correct tax code for you.

See also  Retail tax franchises or online tax software?