How to Interpret Your Tax Code

It’s tempting to stuff a letter about your tax code in a drawer, but don’t. Up to one in three codes is wrong, say accountants, though HMRC reckon only 1% have cause to gripe. Errors are most likely to occur if your circumstances constantly change or you have more than one job or pension (you should have a code for each one). Check the following and ring HMRC on 0300 200 3300 if you spot a mistake. Even if you’ve underpaid, it’ll stop arrears accumulating.

L is the basic personal allowance awarded to everyone born after April 5, 1948, with an income of less than £100,000. It’s currently £9,440, divided by ten to give a tax code of 944L—the actual figure varies according to the allowances or deductions made.

P and Y—think pension. They’re age-related allowances, £10,500 for people born between 6/4/38 and 5/4/48 and £10,660 for those born before 6/4/38, applied to incomes under £26,100. The allowance is given minus the state pension (£5,577 this year).

T is a mixed bag of allowances from van fuel and gift aid to Married Couple’s Allowance (only for those over 79). It also covers deductions for incomes over £100,000; if that reduces the personal allowance to zero, the code is 0T. In contrast, NT stands for no tax taken.

BR D0 and D1 are often slapped on second jobs or pensions where no allowances apply. All income is taxed at a flat rate—20% for BR, 40% for D0 and 45% for D1.

W1 and M1 are emergency tax codes depending on whether you’re paid weekly or monthly. It should be sorted out in a month; if not, contact HMRC.

K is effectively a clawback of tax owing. To find out the size of your debt, multiply the figure in front of the letter K by ten. In a rare show of mercy, HMRC will only take back half your gross monthly or weekly pay, so you’ll have something left to live on