Understanding your tax code is essential for ensuring you’re receiving the right tax allowances and deductions. The letters in your tax code signify your entitlement to the annual tax-free personal allowance and help your employer calculate how much tax to deduct from your pay packet.
For the current and upcoming tax year, the basic personal allowance stands at £12,570,represented by the tax code 1257L for those entitled to the standard tax-free Personal Allowance. This code is commonly used by individuals with one job and no other untaxed income, unpaid tax, or taxable benefits such as a company car.
However, there are variations in tax codes that indicate specific circumstances. For instance,the letter ‘M’ may signify a claim for marriage allowance, while ‘S’ indicates taxation using the Scottish rates for income or pension.
Changes in the numbers or letters of your tax code often mean adjustments to your personal allowance, though not always. Emergency tax codes like ‘W1’ or ‘M1’ are used when new employees lack a P45. These codes calculate tax based on current pay periods until full details are available.
If your tax code begins with ‘K’, it implies that deductions for company benefits, state pension, or previous tax owed exceed your personal allowance. However, deductions in each pay period can’t exceed half of your pre-tax pay or pension.
Regularly checking your tax code is crucial to ensure accurate taxation. If you have questions, we’re here to assist. Alternatively, you can reach out to your employer or HM Revenue & Customs for clarification.
Source: HM Revenue & Customs