Tax codes: what they mean, how to check if yours is right and what to do if it’s wrong
Many of us simply assume that the information on our payslips are correct and don’t pay much attention to the amount we are being paid, the tax code or the amount of tax being deducted.
However, this assumption can leave you out of pocket, with incorrect tax codes leading to people overpaying by the hundreds each year.
This is everything you need to know about tax codes - and how to spot if you’re being overtaxed.
How to check if your tax code is right
The government website says, “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.”
It’s HM Revenue and Customs (HMRC) that tells them what code to use in order to collect the right tax.
If you’re worried that your tax code could be wrong, then you can head to the income tax service online.
You can use this online service to:
- Check your tax code and Personal Allowance
- See if your tax code has changed
- Tell HMRC about changes that affect your tax code
- Update your employer or pension provider details
- See an estimate of how much tax you’ll pay over the whole tax year
- Check and change the estimates of how much income you’ll get from your jobs, pensions or bank and building society savings interest
Alternatively, you can phone HMRC with questions about your tax code by phoning 0300 200 3300.
Or you can write to HMRC at the following address:
Pay As You Earn and Self Assessment
HM Revenue and Customs
What to do if your tax code is wrong
You can correct your tax code using the online service or by getting in touch with HMRC. Once your tax code has changed, HMRC will adjust your tax code, and they’ll write to you or email you to confirm when the tax code has been updated.
They will also alert your employer or pension provider that your tax code has changed, and your next payslip will show your new tax code and any adjustments to your pay if you were paying the wrong amount of tax.
Changes that could affect your tax code
There are a variety of factors that could affect your tax code.
Your tax code might change if:
- You’ve started getting income from an additional job or pension
- Your income has changes
- You’ve stopped or started getting benefits from your job
- You’re getting taxable state benefits
- You claim marriage allowance or expenses that you get tax relief on
What the letters on your tax code mean
Your tax code will usually start with a number and end with a letter.
These are some of the more common letters in people’s tax codes, and what they mean:
- L: You’re entitled to the standard tax-free Personal Allowance
- M: Marriage Allowance: You’ve received a transfer of 10 per cent of your partner’s Personal Allowance
- N: Marriage Allowance: You’ve transferred 10 per cent of your Personal Allowance to your partner
- NT: You’re not paying any tax on this income
- W1 or M1: These are emergency tax codes, which might be because you’ve started a new job, working for an employer after being self employed or have started getting company benefits or state pension
- K (at the beginning): You have income that is not being taxed another way and it’s worth more than your tax free allowance. For most, this happens when you’re paying taxes you owe from a previous year through your wages or pension, or you’ve started getting benefits that you need to pay tax on, like state benefits or company benefits
To read more about what the various letters in your tax code means, head over to the government website.