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Tax codes & PAYE

PAYE tax codes

By Ian Robinson

Article 6 of 10

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PAYE tax codes

What does your tax code actually mean? We help you check the numbers and letters that appear on your payslip.

Tax codes are essentially instructions to your employer or pension provider about how much they should take from your  pay or pension to forward to HMRC. 

The combination of letters and numbers shows your status and the amount of tax-free allowance - how much you can earn without having to pay tax - you should receive. 

  • Get a head start on your 2016-17 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.      

PAYE tax code letters

The most common letters you might see in a tax code are:

  • L - you get the basic personal allowance. In 2017-18, the full code would be 1150L, resulting in the first £11,500 being paid out tax-free. 
  • BR - you receive no tax-free allowance and all your income is taxed at the basic rate (20%).  
  • NT - you pay no tax on your income.
  • K - total deductions exceed your allowances.   

PAYE coding notice

A coding notice is a document issued by HMRC giving advance warning of your tax code for the forthcoming tax year, which starts on 6 April. 

If you receive income from several sources, you may get more than one notice, with a different figure on each. 

Normal practice is for your main employer to use the whole of your tax-free personal allowance and others to tax everything you receive from them - unless you are expected to have unused allowance left over. 

For private pension income, your allowance is adjusted to show the amount of state pension you will receive, which is paid with no tax deducted.

Go further: State pension explained - get to grips with how the state pension works and how you receive it.

PAYE tax codes and underpayment

A common cause of tax underpayment is that you have two different employers and receive a full tax-free allowance from each of them. 

If you have two jobs, or two private pension providers, it is important to check the tax code applied by each of them carefully to make sure your overall combined allowance is correct.  

  • Last updated: April 2017
  • Updated by: Gareth Shaw

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