What is a Tax Code?
A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your salary or pension. It typically represents your tax allowances.
Step-by-Step Guide to Understanding Tax Codes
- Numbers: The number in your tax code (e.g., 1257 in 1257L) represents the tax-free amount you’re allowed annually. Multiply the number by 10 to get your tax-free allowance. (1257 means £12,570 tax-free income.)
- Letter L: The letter indicates how the allowances are adjusted. L means the basic personal allowance. Different letters, like M or N, represent marriage-related adjustments.
- Emergency Tax Codes: If you see the letters W1, M1, or X, this indicates that emergency tax is being applied, meaning the tax-free allowances are not cumulative over the year.
- Special Codes: Codes like BR, D0, or NT mean that tax is deducted at a specific rate or that no tax is deducted.