Your tax code, explained in under 2 minutes.
You’ve probably received a payslip at some point in your working life.
On that payslip was a tax code.
And did that code actually mean anything to you?
Chances are, no, or very little – or in some cases, not until you’d Googled it.
As we type, HM Revenue & Customs are sending out payroll coding notices for Financial Year 20/21, so chances are you’ll have a new code arriving very soon.
To save you a trip to Google or a call with your accountant, we’ll demystify your tax code, right here, in just 2 minutes:
The most standard tax code in FY19/20 was 1250L.
So what on earth does that mean?!
Get ready to have your mind blown:
The amazing, matrix-like code can be cracked by….
Simply adding a zero to the end.
Yep, that’s it.
1250 becomes £12,500.
So, what does this mean?
When your employer (or your company if you are a company owner) calculates your pay for the month (or week), you receive an allowance that is equivalent to £12,500 per year, before you have to start paying tax.
This £12,500 per year is your ‘personal allowance’ available in the 19/20 tax year. Confirmation of the 20/21 personal allowance will come soon after the budget on the 11th of March 2020. It may be the same as last year.
Boom. Done. You are now on your way to understanding tax codes.
What if my code isn’t 1250L?
If your code is not 1250L, then you have something else going on.
HMRC will sometimes adjust your code to make you pay more (or even less) tax.
This commonly happens if you receive taxable benefits, such as medical insurance – or if you have another job – HMRC will reduce your tax code.
So, what might it be?
If you have medical insurance, for example, worth £400 a year, your code could be 1210L (£12,100 per year tax free).
You can read more about taxable benefits in our blog here.
But what does the ‘L’ mean?
Your code might end in an M, N…D1…the list goes on! Check out the full list here.
One important letter is ‘T’.
If you see this, it’s ‘temporary’ and HMRC will need to review it, at a later date.
If you have a BR, OT or D0/D1 tax code, you are paying tax on all of your earnings, either at 20%, 40% or 45% depending on the code.
There we go, a whistle stop tour.
Now go and impress your friends with your new knowledge….
If you have any further questions on this, please contact the team; we’d love to chat to you.