A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.
A tax code is usually made up of one letter and several numbers, for example: 117L or K497.
If your tax code is a number followed by a letter, you can multiply the number in your tax code by 10, to get the total amount of income you can earn in a year before paying tax.
The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor – common tax code letters are explained below.
Common tax code letters and what they mean
L – is used if you are eligible for the basic personal allowance (under 65).
P – is used if you are aged 65 to 74 and eligible for the full personal allowance.
V – is used if you are aged 65 to 74, eligible for the full personal allowance and
the full age related married couple’s allowance (for those born before 6 April
1935 and aged under 75) and estimated to be liable at the basic rate of tax.
Y – is used if you are aged 75 or over and eligible for the full personal allowance.
T – is used if there are any other items HM Revenue & Customs (HMRC) needs
to review in your tax code, or if you ask HMRC not to use any of the other tax
code letters listed above.
K – is used when your total allowances are less than your total ‘deductions’.
If your tax code is a ‘K’ code – for example, K497 – the number indicates how much must be added to your taxable income. Read more under How the K code works.
Other tax codes
If your tax code has two letters but no number, or is the letter ‘D’ followed by a zero, it normally indicates that you have two or more sources of income and that all of your allowances have been applied to the tax code and income from your main job.
BR is used when all your income is taxed at the basic rate – currently 20 per cent
(most commonly used for a second job).
D0 is used when all your income is taxed at the higher rate of tax – currently 40
percent (most commonly used for a second job).
NT is used when no tax is to be taken from your income or pension. (If you have two jobs, it is likely that all of your second income will be taxed at the basic or higher rate
(depending on how much you earn) This is because all of your allowances will have been used against the income from your main job.)
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