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What your tax code means

4 July 2024

Your tax code indicates your eligibility for the tax-free personal allowance. It includes various numbers and letters, each with specific meanings. Changes in your tax code can affect your personal allowance. Regularly checking your tax code is essential.

First, your tax code’s letters show if you qualify for the annual tax-free personal allowance. This allowance is a set amount of income you can earn each year tax-free. Every year, employers use updated codes to calculate tax deductions from an employee’s pay.

The current and next tax year’s basic personal allowance is £12,570. The tax code 1257L corresponds to this allowance. It’s common for people with one job and no untaxed income, unpaid tax, or taxable benefits like a company car.

Different numbers and letters can appear in your code. Some letters, like ‘M’, show when an employee claims the marriage allowance. The letter ‘S’ appears when Scottish rates tax their income or pension. If your code numbers change, it usually means a lower personal allowance.

If a new employee lacks a P45, they use emergency codes (W1 or M1). These codes calculate tax based on current pay.

A ‘K’ at the start of your code means deductions exceed your personal allowance. But, the tax deduction can’t be more than half of your pre-tax pay or pension.

It’s vital to check your tax code. We can help with any questions, or you can check with your employer or HMRC.

Source: HM Revenue & Customs Tue, 02 Jul 2024 00:00:00 +0100

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