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As of the 6th January 2024 the main rate of Class 1 National Insurance Contributions (NIC) deducted from employee wages was reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits.
Last reviewed: February 2024
Your tax code is an important piece of information whenever you’re dealing with HMRC. Its main use is to work out the Income Tax and National Insurance Contributions (NICs) you’ll pay each year. On top of that, your tax code will show any special circumstances that make a difference to your tax situation.
The most common tax code for people employed ‘on the books’ – meaning they’re taxed through the Pay As You Earn system (PAYE) – is 1257L (using the Personal Allowance for the 2022/23 tax year). If you’ve got more than one PAYE job, you’ll have more than one tax code, though. That can get a bit more complicated, as we’ll see below, because you might not get the full benefit of your tax-free Personal Allowance.
Want to know more about the letters in your tax code? Check out the list below.
If you see the letter L at the end of your tax code, it means you’re entitled to the standard tax-free Personal Allowance for your income from the job your code refers to.
Depending on your personal situation, though, you might find that your tax code ends differently. If this happens, it means you’re not getting the same Personal Allowance that most people get for this job or pension. Don’t panic if you don’t get an L tax code, though. It’s not always bad news. If you’re using the Marriage Allowance system, for example, your tax code will typically end in an M or N. All this means is that you and your spouse are making good use of your Personal Allowances to bring down your overall tax bill.
Here’s a basic rundown of the letters HMRC generally uses in tax codes, and what they actually mean:
The K Code: your deductions for company benefits, state pension or tax owed from previous years are greater than your Personal Allowance.
The L Code: you qualify for the normal tax-free Personal Allowance.
The M Code: your partner has transferred up to 10% of their Personal Allowance to you.
The N Code: you've transferred up to 10% of your Personal Allowance to your spouse.
The S Code: you're eligible for the Scottish rate of Income Tax.
The C Code: you're eligible for the Welsh rate of Income Tax.
The Y Code: you were born before the 6th of April 1938. This means your Personal Allowance is higher.
The T Code: your Personal Allowance has some other calculations factored into it.
The 0T Code: you've used up your Personal Allowance or your new employer doesn't have the information they need to work out your proper tax code.
The BR Code: your income for this job or pension is taxed at the basic rate from the very first penny. This can happen if you've got another job with your Personal Allowance attached to it, for example.
The D0 Code: you're being taxed at the higher rate on all the money from this job or pension.
The D1 Code: all of the money from this job or pension is being taxed at the additional rate.
The NT Code: you don't pay tax on this income at all.
The W1, M1 or X Code: you’ve got an emergency tax code for this job or pension.
Some of the tax codes listed above are less common than others, but you still need to be aware of what they mean if they crop up. The K code, for instance, is only used when deductions from your Personal Allowance have actually brought the amount you can earn tax-free in a year below £0! That kind of situation’s not much fun, because it’s like owing tax on income you haven’t even earned!
There are a few reasons why your tax code might change over time, and they’re not all things to worry about. However, it’s still worth keeping an eye out for changes in your code, since they could mean you’re suddenly paying the wrong amount of tax. HMRC will sometimes change your code after you’ve claimed a tax rebate, for instance. The idea is to make sure that you don’t overpay your tax in future years. However, if the work and travel expenses you’re claiming tax relief for change from year to year, you can easily end up with a tax code that doesn’t match your actual situation.
Being stuck on the wrong tax code can be a hassle. That’s why RIFT will always check your code automatically for you and get it fixed if it’s wrong. Meanwhile, if you spot a change in your code that looks wrong – or if you just don’t understand why it happened – give RIFT a call and we’ll sort it out for you.
Interested in claiming at tax rebate? Click the green button below.
To make sure you’re on the right tax code, you can visit the gov.uk site’s tax code section. If you think your code’s wrong, you can let them know there. Of course, if you’re a RIFT customer, this is something we’ll take care of automatically for you. We’ll let you know if your tax code is expected to change, and get it fixed for you if HMRC makes a mistake.
If you've been sent a P800 letter from HMRC, it means either:
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There are two main parts to your tax code: a number that shows how much you can earn in a year before paying Income Tax on it, then one or more characters showing any particular circumstances that affect how you’re taxed.
For instance, if you’re claiming Marriage Allowance to transfer some of your Personal Allowance to a spouse, you’ll find an N at the end of your tax code (your spouse will get an M instead). On the other hand, if you’ve got more than one job, you’ll get a separate tax code for each. Your ‘main’ job will have your normal Personal Allowance attached to it (getting an L tax code), while your second job will get a separate code (usually BR, D0 or D1, depending on the tax band you’re in) meaning you pay tax from the very first penny you earn from it.
Taking the most common code (currently 1257L) as an example, the ‘L’ part lets the taxman know that you don’t have any special circumstances to consider. Meanwhile, the ‘1257’ shows that you qualify for the standard tax-free Personal Allowance of £12,570 (you just multiply the number in your code by 10 to work this out). As a result, you won’t pay a penny in Income Tax until you earn over £12,570 – which works out at an income of around £242 per week, or £1,048 a month.
Anyone who’s paid more tax than they owe can apply for a tax refund (also called a tax rebate). One of the main reasons you might be owed a refund is paying out for work expenses like essential business travel. You might also be owed tax back after a redundancy or if you’ve been given the wrong tax code.
When things like this happen, HMRC won’t usually have the information it needs to refund your overpaid tax automatically. That’s why you have to prove what you’re owed and claim it back yourself. As the UK's leading tax refunds expert, RIFT can get your tax back for you.
The average tax rebate amount is £3,000, and it costs nothing to find out what you’re owed.
The government adjusts the Personal Allowance from time to time, changing the amount you can earn before paying any Income Tax. For example, in the 2020/21 tax year you could make £12,500 a year tax-free. The Personal Allowance threshold was then raised to £12,570 in April 2021. As a result, the basic tax code that most people were on changed to 1257L.
Even if the Personal Allowance threshold hasn’t changed, HMRC may sometimes alter your tax code to include some tax relief in it. This means you’ll be able to earn a little more before paying tax. For instance, HMRC might tweak your tax code to allow for costs like washing your work uniform or working from home, if you’ve claimed those before.
Keep in mind that the expenses that can earn you a tax refund might change from year to year – particularly if you travel for work. If they do, any changes made by HMRC to your tax code could be out of date and leave you paying too much or too little tax down the road. If your tax code changes unexpectedly, get in touch with RIFT. We’ll double-check it for you and fix it if it’s wrong. There’s no extra charge for this; it’s all part of the RIFT Tax Refunds service.
When you’re paying for certain types of essential work expenses from your own pocket, HMRC lets you claim back some tax for those expenses. As we mentioned above, this sometimes means a change in your tax code to bump up your Personal Allowance a little.
If you claim the allowance for upkeep and laundry of a work uniform, for example, your tax code might be boosted from 1257L to 1263L. This means meaning you can earn up to £12,630 a year before paying tax.
There’s also the Working from Home allowance of £6 per week to consider, which is worth £1.20 a week in tax relief. If you’re claiming this, your tax code goes up to 1288L, so you’re paying no tax on the first £12,880 you earn in a year.
These are called ‘flat-rate’ tax reliefs – and because they’re based on guesses about your actual expenses, they can be a little tricky to deal with if you don’t know HMRC’s rules well. Read more about them here.
There are several things HMRC will factor in when deciding your tax code – the first of which is whether or not you qualify for the standard Personal Allowance. The taxman will look into any untaxed income you’ve got, whether that’s savings interest, rental payments or part-time earnings. All of that income is counted against your Personal Allowance. HMRC will also consider any benefits or perks you get from your job, like company cars.
With your Personal Allowance calculated, that number is divided by 10 to decide the main part of your tax code. If there are any more circumstances that need to be recorded, the letter for them is added to the code. Otherwise you get the standard L.
Tax codes are important for everyone who pays tax, particularly when they change unexpectedly or end up wrong. Having the wrong tax code means you’re probably paying the wrong amount of tax, with some potentially serious headaches coming down the line.
This is a crucial point to remember: paying too little tax can be even worse than paying too much. Even if the mistake in your tax code wasn’t your fault, you’re still wholly responsible for setting things straight. So, even if HMRC themselves messed your code up, you’re still expected to spot and report the issue yourself. That’s a big problem for the 46% of British taxpayers who don't understand how the tax codes even work.
In fact, most UK taxpayers are in the dark about HMRC in general. 4 in 5 people don't know what the top rate of tax is, for instance. About half don't understand how the code in their payslips relates to the tax coming out of their earnings, either. Older people generally seem to have the best grip on things, but the 18-25 age bracket is lagging badly behind.
Whatever your circumstances or tax code, RIFT has you covered. When we handle your tax refund, we'll check to see if HMRC has changed your code to reflect your essential work expenses. If it's wrong, we'll get it changed for free as part of our service.
Our tax compliance team will get to straight work if you get a letter from HMRC saying your tax code's changing (called a P2 Coding Notice). In fact, even if you don't get one of these, let us know if the tax code in your payslips looks different or wrong. If there's a problem, we'll get it sorted as part of your free
While most people in the UK get a standard Personal Allowance, depending on your situation you might find yourself with some reductions to what you can earn tax-free in a year. For example, you might be claiming Marriage Allowance to transfer a portion of your unused Personal Allowance to your spouse. On the other hand, you might be a high earner with an income of over £100,000. In that case, your Personal Allowance is reduced by £1 for every £2 you make over that threshold.
If you find yourself with a K tax code, you’ve had enough taken out of your Personal Allowance to bring it below £0. This can happen, for example, if you still owe tax from a previous year or if you’re getting a lot of benefits (state or company) that count for tax.
With a K tax code, your employer or pension provider will take what you owe out of your income through PAYE. They can’t take out more than half of your pre-tax wages this way, but it’s obviously still an uncomfortable position to be in.
The rules about Personal Allowances get pretty complicated here, with higher earners needing to use Self Assessment and other tricky areas to navigate. In fact, the full UK tax code document is over 22,000 pages long! If you’re not 100% sure where you stand with your tax situation and need some help, your best and safest bet is to talk to an expert like RIFT.
You can’t boost your Personal Allowance directly, but there are still ways to bring down your overall tax bill. As always, this very much depends on your individual circumstances. However, some of the more readily available tax reliefs you can get include:
Every job or pension you've got has its own tax code – and most of the time that's not a problem. Where things can get tricky, though, is when your Personal Allowance is attached to the wrong job or your combined income goes over the higher rate threshold for tax.
If the job with your Personal Allowance on it brings in less than the allowance itself, that means you won't be getting the full benefit of it. Your second job will be taxed from the first penny, unless you arrange to have your allowance split between them. On the other hand, if the combined income from your jobs breaks the threshold for paying higher rate tax, but neither job does this on its own, you might find that you're not paying as much tax as you should. Both of these situations can be bad news unless you get them fixed fast.
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