Have you checked your tax code?

Prior to the tax year starting each 6 April, HM Revenue and Customs (HMRC), will issue new tax codes to employees, usually where there is a change of tax code.

These tax codes, a series of letter and numbers, allow employers to deduct the right amount of tax to be deducted from each employee when the payroll is run. That is, unless the tax code isn’t correct. Therefore, it pays to check that the tax code has been calculated correctly.

The tax code notice usually sets out what has been included. For instance, it will usually include a person’s annual tax-free personal allowance.

What do the numbers and letters making up the tax code mean?

Numeric component

This usually represents the amount of tax-free income an individual is entitled to in a tax year. For example, a tax code of 1257L indicates a tax-free allowance of £12,570 for the tax year.

Letter component

This letter indicates specific circumstances or adjustments that apply to the individual’s tax code.

Some common letter codes include:

• L – the individual is entitled to the basic tax-free allowance.
• M – marriage allowance is being transferred from a spouse or civil partner.
• K – additional deductions are being made from the individual’s pay, such as underpaid tax from previous years or tax on benefits in kind.

It is important to check that a tax code is correct to avoid overpaying or underpaying tax.

If an employee believes their tax code is incorrect or needs adjusting, such as due to a change in personal circumstances or income, they can contact HMRC directly to request a review or update of their tax code. HMRC will then make any necessary adjustments and send an updated tax code to use in subsequent payroll calculations.

If you need any help with your own or your employees’ tax codes, please do not hesitate to contact us. We will be happy to help you.

Looking for advice? Check out our full range of services. From payroll help to taxation advice, our expert team is available to lend a hand.