HMRC Tax Code Explanation

3 mins

Chances are you have heard of them, after all, you see then on your wage slip every month. But do you have any idea what those secretive codes mean? We at DSR Tax Refunds Ltd feel your pain and we want to share some of our expertise in tax matters with you. So sit comfortably and let us explain the mystery of HMRC tax codes to you. And if you have any questions when you get to the bottom of our guide, give one of our friendly team a call on 0330 122 9972 and we can help.

In simple matters, a tax code consists of a number which represents how much you can earn before tax – if you multiply that number by 10, you get your personal tax free allowance, that is how much you are allowed to earn before you have to pay any tax.

To work out this number, HMRC works out your personal tax allowance. Then they add up any income you haven’t paid tax on (such as untaxed interest on savings or earnings from a second job) as well as the value of any benefits you may get from your job (such as private medical insurance or a company car). They then take this away from your personal tax allowance and what is left is the amount that you are allowed to earn before you are taxed in the current tax year. Divide that by 10 and that is how you get the number.

And then there is the letter. That letter is used to inform your employer or pension provider or anyone else who might have an interest in your tax allowance of anything relevant in your personal circumstances.

Letters in your tax code

That takes care of most of the common tax code letters although there are some rare ones, like K for example, which means that you are paying additional tax relating to a previous year maybe because you are in arrears. W1, M1 and X are all temporary emergency tax codes, usually used because you have started a new job.

The most common tax code is 1250L – this means you have a tax free personal allowance of £12,500, which is the basic tax-free allowance.

We hope this has answered your tax code queries, but if you still have questions then give our friendly team at DSR Tax Refunds a call on 0330 122 9972 and we will do our best to help.

This page was last updated on 09/04/2019.

Call our experts

Let’s get started on your tax rebate or self-assessment return

You May Also Be Interested In

Our experts have collected an extensive range of handy informational resources across a number of common taxation areas. If you can’t find what you are looking for here, check out our Resources section.

arrow-ctrl-right arrow_downarrow_leftarrow_rightcalendar car-connect crossemail link map-pinnews phone pin-3 Asset 1share-link social-facebook-circle social_facebooksocial_googleplussocial_instagramsocial_linkedin_altsocial_linkedinsocial_pinterestlogo-twitter-glyph-32social_youtubeticktime vest