There are several different tax codes used on payslips in the UK – here is everything you need to know about them
Ever been left scratching your head over the tax code on your payslip? This seemingly random jumble of letters and numbers is actually vital, as it dictates how much tax you pay on your earnings.
If it is wrong, you could be due a refund worth thousands. While it is easy to ignore this code when wages hit your bank account, it is crucial to ensure it is accurate for your situation.
HMRC calculates each individual number based on ‘your tax-free Personal Allowance and income you have not paid tax on’, which includes untaxed interest and part-time savings. The value of benefits, such as a company car, is also considered.
Currently, the Government states that ‘1257L’ is the most common for people with one job or pension. The ‘L’ indicates that you’re entitled to the standard tax-free Personal Allowance – the amount you can earn each year before tax.
At the moment, this figure is £12,570. “You’re entitled to the standard tax-free Personal Allowance of £12,570, but you also get medical insurance from your employer,” its advice reads, as per Manchester Evening News. “As this is a company benefit it lowers your Personal Allowance and changes your tax code.
“The medical insurance benefit of £1,570 is taken away from your personal allowance, leaving you with a tax-free Personal Allowance of £11,000. This would mean your tax code is 1100L.”
HMRC tax codes explained:
It is key to note that tax codes ending with ‘W1’, ‘M1’, or ‘X’ are emergency signals, often triggered by life changes such as landing a new job, receiving company perks, or starting to collect a State Pension. If you spot a ‘K’ at the start of your tax code, it means your income is being taxed in another different way. This could happen if you’re settling tax from the previous year through your current earnings or pension.
“Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension – even if another organisation is paying the untaxed income to you,” the Government explains.
“Employers and pension providers cannot take more than half your pre-tax wages or pension when using a K tax code.” Should you suspect you’ve overpaid on taxes and are due a refund,visit the Government’s website to fill out a form.
According to RIFT, the average tax rebate amount in the UK is £3,000. This value is based on ‘average total claims data for a four-year period’. “Used your own vehicle or public transport to travel to different work locations?”, its advice reads.
“You could be owed a HMRC tax rebate but it’s not something you’ll just automatically be given back.”
Further information on tax bands is available at the Government’s website at GOV.UK
