Tax Codes
6th August 2011 by Tax Man No CommentsWhen you part with your hard-earned savings to pay your taxes, are you convinced that you are paying the right amounts? Or do you suspect that you may be paying more than what you should? Understanding your tax code and knowing what it means gives you a sigh of relief that you are indeed paying what is due the government.
A tax code is issued by the HMRC and used by your employer, large or small business payroll services provider or pension provider to calculate the amount of tax to deduct from your pay or pension. If you are on the wrong code you could end up paying too much or worse not enough.
Usually several numbers and a letter compose the code. In general this represents the amount (divided by ten) of income you can receive before you pay tax. Therefore if you are entitled to ?,475 before paying tax then your tax code will be 647L. The majority of the codes are numbers, but some are just letters, for example BR (Basic Rate) which tells the employer to reduce tax on all income at the basic rate, or NT (No Tax) usually for non-residents who are not liable to UK tax on their earnings. If you are entitled to the basic Personal Allowance then L is added to the number. If you are entitled to a higher allowance due to age then P (65 to 74) or Y (over75) are added.
Always keep a note of all coding letters for reference, as if you have to question or check if you are paying the right amount of tax, you have all the necessary information at hand. It is imperative to understand tax codes, for if you have the wrong one, you could pay too much or too little.
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