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Exact tax codes on payslip that signal if you’re owed cash worth £689 as HMRC letters land on doormats
Millions of workers are thought to be on the wrong tax code
EVER looked closely at your payslip and wondered what the mysterious codes mean?
It might seem a headache to decipher, but these numbers will show if you are paying the right amount of tax.
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And it’s important to check.
Not doing so could either leave you thousands of pounds out of pocket or unexpectedly owing a packet to the government.
A survey by the financial services company Canada Life recently revealed 31% of adults have been on the wrong tax code at some point, with the average overpayment worth £689.
One in six UK adults do not know if they are on the right tax code and 39% are not aware what any of the letters or numbers on their tax code mean.
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At the end of each tax year on April 5, HMRC will send out letters to tell people if they have overpaid or underpaid tax - these are known as a P800 letter and land around now.
Here we explain exactly what you need to know…
What is a tax code?
Tax codes - which determine how much you are paying to the Government - can be found on your payslip, your P60 or by contacting HMRC. It’s normally some numbers followed by a letter.
It’s important to keep track as you can sometimes end up on the wrong tax code due to changing jobs or salaries, and HMRC not being informed. Sometimes this can simply be an error.
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It's thought millions of workers are in this situation, leaving them open to all manner of financial nightmares.
Thousands of households hit with 'hidden' tax costing £8billion a year
If you notice you’re on the wrong code, you can claim back any overpaid tax for the last four financial years.
How do i check?
First look at the numbers, which show how much income you can earn before paying tax.
The standard code now and for the past few years has been 1257L, meaning you can be paid £12,570 before tax is deducted.
This hasn’t changed since tax year 2020 to 2021, when the personal allowance was less at £12,500.
Now look at the letters and check our code here:
BR - Normally used where people have a second job or pension - all income gets taxed at the basic rate
D0 - For people with multiple incomes who earn over £50,270. All your income for this job or pension will be taxed at the higher rate of 40 per cent.
D1 - For people on megabucks with gross earnings of more than £125,140 across different jobs and pensions. This code means you’ll be taxed at 45 per cent on this job.
K - You owe tax - either from a previous year or you have taxable benefits - and HMRC are getting you to pay up by taking what’s owed through your salary. The K is usually placed in front of the tax code number, rather than after it.
L - Most people are on the L code, which means you are entitled to the standard tax-free personal allowance of £12,570.
M - Stands for “marriage”. It means you can pay less tax because your spouse or civil partner has transferred 10 per cent (currently £1,260) of their personal allowance to you
N - Also marriage related but you're the one making the transfer.
NT - Short for “No Tax” on this income. You get this if you have a non-resident status or if you're declaring the relevant income in a way that is known and agreed by HMRC
T - You’re a special case and other calculations have been used to work out your Personal Allowance, commonly because you’re earning more than £100,000.
0T - An emergency tax code issued if your employers don’t have enough details to figure out how much tax you should pay. Avoid this like the plague as you won’t get any personal allowance and you’ll lose 20 per cent at the basic rate on all income, 40 per cent at the higher rate and 45 per cent at the additional rate.
M1 - An emergency tax code which means your tax will be based on that month rather than the full tax year. If you’ve changed your job, make sure your new job has your P45.
W1 - Another emergency code, used if you are paid weekly. Again, check your employer has your P45 for updating your code.
Other things to check
Look at whether you’ve been paid for the number of hours you’ve actually worked as well as for overtime, commission or bonus.
Check any entitlement to sick pay, holiday pay or maternity pay.
If you get paid per hour, your payslip has to show how many hours you’ve worked.
Also check your National Insurance number is correct.
Tax expert Jessica Middleton, from family business Middleton Professional Accounts Services, said: “If the number's wrong, your state benefits, such as the pension or maternity pay, could be affected. It's worth the effort to double-check.
“And don’t think this can’t happen – we have had clients using the wrong national insurance number for years and because various tax departments don’t talk to each other, they were none the wiser.”
What do i do if it's wrong?
Talk to your employer to find out why.
Act quickly – it’ll be much harder to get your money back after three months from the date the problem arose, according to Citizens Advice.
You can also contact HMRC on 0300 200 3300 or by sending a letter to the following address, Pay as You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.
If you are on the wrong tax code and have been paying too much, HMRC will adjust it and also reimburse any tax you've already overpaid on, or ask to be paid back.
If you've been underpaying tax, you will usually have to pay the money back over 12 months.
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Time limits in place to reclaim any overpaid tax are currently four years from the end of the tax year in which you are trying to claim.
So, if you're in any doubt you've overpaid tax, you should contact HMRC as early as possible.
How do I file a tax return?
TO file a self assessment tax retun, you'll need to register with HMRC first, which will then issue you with a Unique Taxpayer Reference (UTR).
You must register for self assessment by October 5 if you have to file a tax return and you have not sent one before.
You can do so by visiting www.gov.uk/register-for-self-assessment.
If you've previously registered and already have a UTR, you don't need to go through this step again.
Once you've got your UTR, you can sign in via the "Self Assessment tax return" section of HMRC's website by visiting www.gov.uk/log-in-file-self-assessment-tax-return.
You can then file your self assessment tax return online.
The deadline for sending a return online is January 31 every year.
If you need a paper copy of the main Self Assessment tax return, call HMRC on 03000 200 3610 and request an SA100 form.
The deadline for sending a return using a paper form is October 31 every year.
You need to pay the tax you owe by midnight on January 31 each year.
HMRC accepts your payment on the date you make it, not the date it reaches its account.
File late and HMRC will issue you with a fine.
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