HMRC tax codes explained​

HMRC Tax CodesWhat do the letters in my tax code mean?

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.

Does RIFT change my tax code?

No! There's a myth that we change your tax code after you've claimed a tax rebate with us but that's not true. We are unable to make any direct changes to your tax code, only HMRC can do that. Click the button below to read more.

Personal AllowancesMy tax code has changed from 1263L to 1288L . What happened?

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.

1263L Tax Code

Tax Codes ExplainedWhy does my tax code matter?

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

Personal AllowanceCan I increase my tax-free Personal Allowance?

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:

• Marriage Allowance: this system allows people who are married or in a civil partnership to handle their tax situations better. If one partner isn’t making full use of their Personal Allowance, they can transfer a chunk of it to their spouse (if they’re a basic rate taxpayer) – increasing the amount of their income that isn’t taxed.
• The Personal Savings Allowance (PSA): This is a tax relief on the interest your savings make. Basic rate taxpayers can earn £1,000 a year in interest without paying tax on it. For people paying higher-rate tax the limit is £500 a year, while additional rate taxpayers get no PSA at all. If your earnings are low, you might qualify for the special ‘starting rate’ instead, which allows you to earn as much as £5,000 in interest tax-free. Again, there are rules and limits to keep in mind, so talk to RIFT if you’re not sure what you qualify for.

Learn moreRead our latest blogs

Check out our blog for tips on discovering what the taxman owes you and how to get it back. Plus, with an average refund of £3,000, we'll even throw in some hints on spending your reclaimed cash as well as how to make the most of your money!