Understanding Tax Codes

Tuesday, 4 of January 2011

Where does my tax code come from?

Your tax code is issued by HMRC to your employer, so that the right amount of income tax (PAYE) that can be deducted each month from your salary.

Here are some examples of tax codes:

* 474L
* 474P, 475V, 382Y
* 384T
* K384
* BR, OT, DO, NT

Except for the last few, the majority of tax codes are a combination of numbers and letters.

The numbers are used to work out how much income should be taxed. The letter is used to determine how the income is taxed.
What the number means

The number is used to work out your tax allowance as follows:

Tax allowance = Number X 10 + 9.

For example, if you earn £20,000 per annum and your tax code is 475L then your tax allowance would be 4759. This is then deducted from your salary to determine your taxable income. For this example, the taxable income is £15,241.

Note: If your tax code is a letter ‘K’ followed by a number, it means that the total allowances in your code are less than the total deductions to be taken away from your allowances. In this case the number is added rather than deducted to determine the taxable income. For someone earning £20,000 with a tax code of K475 the taxable income would be £24,759.

For a personal calculation of your own income tax (PAYE) and National Insurance (NI) contributions use our PAYE/NI Net Salary Tax Calculator.

What the letters mean?

Tax code L

Indicates a basic personal allowance and is the most common code.

Tax codes P, V and Y

Indicate higher personal allowances for those aged over 65.

Tax code T

Indicates there are items requiring review by your Inspector of Taxes.

Tax code K

The amount of allowances is less than total deductions. An example could be if you have a company car, private medical benefit and other taxable expenses and benefits in kind which exceed the amount of the personal allowance.

Tax code BR

Stands for “Basic Rate” and indicates that all of your income is to be subjected to the basic rate of tax at the current rate. You will therefore receive no personal allowances but you will not be subjected to higher rates of tax.

Tax code OT

Indicates that you have no personal allowances and all income is subject to basic and higher rates of tax.

Tax code DO

Indicates all of your income is subject to the higher rate of tax.

Tax code NT

Indicates that no tax is to be deducted on your income – the tax code we would all like to have!

Back to news