HMRC tax codes explained​

Tax codes are HMRC's way of checking how much tax and National Insurance you're supposed to pay each year. If you've got any special circumstances that change the tax you owe, they'll be shown in your tax code. For most people in the 2020/2021 tax year, for example, the basic tax code would be 1250L.

Breaking that code down, the taxman can tell that there are no special circumstances that apply (the “L” part), and that the taxpayer gets a standard tax-free Personal Allowance of £12,500 (the “1250” part, which you multiply by 10). That allowance means that they won't be taxed until they're making more than this. Want to know more about the letters in your tax code? Check out the list below.

HMRC Tax Codes

What do the letters in my tax code mean?

There are lots of different tax codes you could be given, and lots of reasons behind them. The number part of your code might be different, for instance, if you've got more than one job or if you and your spouse use the Marriage Allowance rules to transfer a portion of your Personal Allowances between you. As for the letters, here's what they actually mean:

The K Code: Used in an employee's tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their 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 Y Code: You were born before 6 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: This either means you've used up your Personal Allowance, you don't have a P45 or you've got a new employer and they don't have the information they need to work out your proper tax code. 

The R 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 and your allowance is attached to that one, 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.

Those letters cover most of the situations you might encounter, but there are a few others. The K code, for example, means your circumstances have brought your Personal Allowance down so much that it's actually below £0. That's a nasty situation to finds yourself in – it's like owing tax on cash you never even earned!

Sometimes, HMRC will change your code to account for the work expenses you've claimed tax rebates for in the past. Basically, they just alter your code so that you won't be charged too much tax in the future. The trouble with this is that the taxman tends to assume that your expenses won't ever change year on year. As anyone who travels for work will tell you, that's just not the case. Getting stuck on the wrong tax code can be a serious hassle, so it's really important to stay on top of yours. If it changes and you don't know why, send up a distress flare to RIFT. We'll check the code you're on and get it fixed if it's wrong.

Tax Code Changes

My tax code has changed from 1250L to 1256L or 1282L. What does this mean?

Additional numbers in your tax code, like 1256L or 1282L, mean that HMRC has included some tax relief to the amount you can earn before you start paying tax. This may be an allowance for costs like washing your work uniform or working from home.

For the 2020/21 tax year, the basic tax code for most people is 1250L. This means they can earn up to £1,250 before they pay a penny in tax. Here’s how to read it:

  • The “L” at the end of your tax code just means that, like most UK employees, you’re entitled to a tax-free Personal Allowance.
  • The numbers before the letter will show you how much you can earn in a year before you start to pay tax. You multiply that number by 10 to see where the threshold is for you.

HMRC will sometimes change your tax code after you’ve claimed a tax refund, to account for the work expenses you claimed that year.

If your expenses don’t change year-on-year, that’s fine. It just means you won’t need to claim back any tax in future years. The thing is, most people’s expenses don’t stay the same, so they have to make a new tax refund claim each year to get back what they’re owed. If that sounds like you, then you probably won’t want your tax code to be permanently changed by HMRC like this.

If your tax code changes and you don’t know why – or think it might be a mistake – get in touch with RIFT. We’ll double-check it for you and get it fixed if it’s wrong. It’s all part of the RIFT Tax Refunds service.

HMRC Tax Codes

Check Your Tax Code

If your tax code's been changed contact us, we'll get it fixed for you:

Step 1

Look at your current payslip.

Step 2

Is your pay higher or lower than usual?

Step 3

Were you expecting it to change?

Step 4

If not, tell RIFT immediately.

RIFT: Putting HMRC tax rebates back in your pocket since 1999

RIFT has clawed back literally hundreds of millions of pounds from HMRC for our customers over the years. We’re the UK’s leading experts at it, and our tax code specialists always make a point of checking your tax code when we handle your refund claim. If HMRC makes a change to it, we’ll make sure it’s correct and fix it for free if it’s wrong.

Tax code trouble is one of the many reasons people miss out on their claims, or even get into hot water with HMRC. With RIFT by your side, you’ll always know your code’s in expert hands. At the same time, we’ll use our expertise to claim back every penny you’re owed, keeping you safe from the many dangers and drawbacks of tackling the taxman alone.

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Tax Codes Explained

How does HMRC decide on my tax code?

The first thing the taxman will do in setting your tax code is check if you qualify for the standard Personal Allowance. For one thing, he'll look at any income you've got that hasn't been taxed, like any untaxed interest or part-time earnings you've got coming in. That cash will usually come out of your Personal Allowance, bringing it down. HMRC will also take any benefits and perks you get from your job into account. We're talking about things like company cards and so on.

Once your Personal Allowance is settled, that figure is divided by 10 to get the number portion of your tax code. If there are any more circumstances that need to be noted, the appropriate letter is added to the code. Otherwise you get the standard L.

Tax Codes Explained

Why does my tax code matter?

Tax codes can change over time, sometimes unexpectedly, and can even end up just being flat-out wrong. Not only does that mean you'll probably be paying the wrong amount of tax, but you could be stocking up serious headaches down the line. Remember, paying too little tax can actually be worse than paying too much when HMRC eventually catches on. What's worse is that even if the mistake in your tax code isn't your fault, the taxman holds you entirely responsible for it. It makes no difference if the error was your employer's or HMRC's themselves. It's your job to spot and report it – which is a big problem if you're one of the 46% of British taxpayers who don't understand how the codes work.

In fact, most people in the UK are in the dark about tax in general. 8 out of 10 don't know what the top rate of tax is, for instance, while around half don't understand the connection between the code on their payslips and the tax being sucked out of their earnings. Older generations generally seem to have the best grip on things, with the 18-25 bracket lagging badly behind.

Whatever tax code you're on, the main thing to know is that RIFT has you covered, When you claim a refund with us, we'll check to see if HMRC has altered your code to account for the expenses you've declared. If it's wrong, we'll get it changed for free, as part of our refund service.

If you get a letter from HMRC saying your tax code's changing, get in touch with us and we'll get our Tax Compliance team on the case straight away. In fact, even if you don't get a letter (a P2 Coding Notice in HMRC's language), give us a heads-up if the tax code in your payslips changes unexpectedly. If there's a problem, we'll get it sorted as part of the aftercare we provide.

Tax Codes Explained

Tax codes for more than one job

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 bring 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 does 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.

Tax Refund Advice

Need more information?

We've put together a range of helpful guides to answer any of your tax refund or self assessment tax return queries. Remember, we've been in the business sicne 1999 making us the UK's leading experts on all things tax!

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Our guarantee means you'll never lose a penny

When you claim a tax rebate with us, our unique RIFT Guarantee means that you don't have to worry about the taxman reclaiming any of your money.  So long as you give us full and accurate information, if HMRC disagrees with the amount that we've claimed and ask for the money back, we'll pay it from our pocket, not yours.  It won't cost you a penny.

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Need more help?

Wondering if you can claim a tax refund or need to submit a tax return? Use our online tools to find out if you're owed money by HMRC.

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