Tax codes can be confusing. Whether you’re self employed or work for an employer, it’s important to know how much tax you’re paying and how your tax is calculated by HMRC. You’ll also need to take into account things like self-employed pensions and tax relief, or tax implications if you’re freelancing whilst working. Make sure to check out these guides after seeing our list on UK tax codes explained below.
What do tax codes mean?
Your tax code is a combination of letters and numbers that shows HMRC how much Income Tax and National Insurance you should be paying, and lets your employer or pension provider know how much tax-free income you will get that year.
How do HMRC work out your tax?
HMRC works out your tax code depending on your tax-free personal allowance along with the income you haven’t paid tax on. This could be untaxed interest, part time earnings and the value of any job benefits, like a company car.
What is my personal allowance?
In the UK, the standard personal allowance is £12,570 (i.e., the amount you do not have to pay tax on). This amount decreases if your income is over £100,000. This amount increases with marriage allowance or blind person’s allowance.
Tax codes explained: our easy guide
| Letter | Description |
| L | This is the code for most taxpayers. You’re entitled to the standard tax-free Personal Allowance |
| M | Marriage Allowance: you have received a 10% transfer of your partner’s Personal Allowance |
| N | Marriage Allowance: you have transferred a sum of 10% of your Personal Allowance to your partner |
| T | For high earners over £100,000: with this, your tax code includes other calculations in order to work out your Personal Allowance |
| 0T | For high earners over £125,140: this means that your Personal Allowance is used up and your whole income will be subject to Income Tax rates. Or, if you’ve started a new job, it means your employer hasn’t got the details to give you a tax code |
| BR | For second jobs and pensions: Income from this job/pension is at basic rate tax (used if you have more than one job/pension) |
| D0 | For second jobs and pensions: Income from this job/pension is at a higher tax rate (used if you have more than one job/pension) |
| D1 | For second jobs and pensions: Income from this job/pension is taxed at the additional rate (used if you have more than one job/pension) |
| NT | You are not paying any tax on this income. This could be because: – Your total income is less than your Personal Allowance – You are liable to pay National Insurance but not Income Tax because you’re a self-employed contractor |
Tax codes explained: specific to Wales
Tax codes are labelled slightly differently in Wales. See them below:
| Letter | Description |
| C | Your income or pension is taxed using Welsh rates |
| C0T | For high earners over £125,140: this means that your Personal Allowance is used up and your whole income will be subject to Income Tax rates. Or, if you’ve started a new job, it means your employer hasn’t got the details to give you a tax code |
| CBR | For second jobs and pensions: Income from this job/pension is at basic rate tax (used if you have more than one job/pension) |
| CD0 | For second jobs and pensions: Income from this job/pension is at a higher tax rate (used if you have more than one job/pension) |
| CD1 | For second jobs and pensions: All your income from this job or pension is taxed at the additional rate in Wales (usually used if you’ve got more than one job or pension) |
Tax codes explained: specific to Scotland
Tax codes are also labelled differently in Scotland. We’ve listed them below:
| Letter | Description |
| S | Your income or pension is taxed using the rates in Scotland |
| S0T | For high earners over £125,140: this means that your Personal Allowance is used up and your whole income will be subject to Income Tax rates. Or, if you’ve started a new job, it means your employer hasn’t got the details to give you a tax code |
| SBR | For second jobs and pensions: Income from this job/pension is at basic rate tax (used if you have more than one job/pension) |
| SD0 | For second jobs and pensions: Income from this job/pension is taxed at the intermediate rate (used if you have more than one job or pension) |
| SD1 | For second jobs and pensions: Income from this job/pension is at a higher tax rate (used if you have more than one job/pension) |
| SD2 | All your income from this job or pension is taxed at the top rate (used if you have more than one job or pension) |
Other tax codes explained
| Letter | Description |
| W1, M1, X | These are emergency tax codes: this means you will pay tax on all your income above your personal allowance because your details were not updated in time. These tax codes are temporary, possibly due to a new job, working for an employer after being self-employed, State Pension or getting company benefits. When you give your employer your P45 or P46 to, your tax code should change and you should be reimbursed for any losses. |
| K | You have income that isn’t being taxed another way and is worth more than your tax-free allowance. This can happen if you’re paying tax from a previous year through wages/pension or are getting state/company benefits that you need to pay tax on. |
Tax codes are highly important to understand your business expenses. For business expenses help and advice, see how Accountancy Solutions can aid you. Also make sure to see if you’re eligible for tax-free childcare with our guide.
