A tax code is used by your employer, large or small business payroll services provider or pension provider to calculate the amount of tax to deduct from your pay or pension. If you are on the wrong code you could end up paying too much or worse not enough.
A tax code can be made up of several number and letter combinations for example; 115L or K453.
If your code is followed by a letter then you multiply the number in your code by ten, that lets you know how much you can earn before being taxed.
Also different tax codes could have two letters and no numbers OR D followed by a zero ‘0’- this is normally used where you have two or more sources of income and have used up all your allowance or tax relief with one of your employers already. For example: the BR tax code is used most commonly for a second job or pension and is taxed currently at 20 percent.
How do I know I’m on the correct tax code
Normally you will find your code on your P45 (given to you by your employer when you stop working for them), P60 at the end of the financial year or payslips issued to you by your employer. This is why it’s very important to give this to your new employer when you change jobs.
If you’ve lost your P45 and want to find out your code contact your Tax Office and give them your National Insurance number and tax reference number.
What happens if I am on the BR tax code but only have one job?
Sometimes your employer, payroll services provider or pension payer will have to use an ’emergency’ or ‘special basis’ code until they have worked out what your correct code should be. This can happen if you start a new job and do not provide a P45. While you are on an emergency code you’ll get the basic Personal Allowance- if you have paid too much tax under the emergency code, you will get a refund. We would recommend you contact the HMRC with the tax reference code given to you from the company who you paid the tax with so you should then be able to claim back and your new employer will be issued with the correct tax code for you.