A list of tax codes and what they mean

Tax codes can be complicated, but they don’t have to be, together we’ve put an extensive guide together of a list of tax codes and what they mean.

There are 20 tax codes in the UK, with additional letters and numbers adding to the complexity.

For all business owners, not just the smaller ones, payroll can be a real time-drain. If you need help with your payroll or just want to hand it over.

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Without further ado let’s get into the list of tax codes and what they mean.

L

L is the most common tax code, so let’s kick off here.

So, what does L mean? No, not for the way you look at me, but for an employee who’s entitled to the standard tax-free personal allowance.

This will be the case for almost all employees you ever deal with. You’ll most commonly see L as 1257L, where 1257 symbolises the £12,570 tax-free personal allowance that most people are entitled to.

For most people, when researching the list of tax codes and what they mean, you won’t need to go much further than this…

0T

But let’s do it anyway. With the numbers 0 (zero) and the letter T, you may be wondering if this tax code means you pay no tax. Well, it’s the opposite. The 0T tax code means you are not entitled to a personal allowance.

Therefore, you pay tax on everything you make. HMRC will usually put you on this tax code if it’s not sure which tax code you should be on.

If you or your employees are listed on the 0T tax code, this should be rectified as quickly as possible so your employee can rake in more of that sweet, sweet cash.

BR

BR means ‘basic rate’ and is applied to those working a second job. For those people who like to earn some extra cash, HMRC will normally be able to tax 100% of what you earn while you work there.

When someone works two jobs, it’s usually their main job (the job they spend most of their time doing) that will have the L tax code and with it, their personal allowance.

BR tax codes will also apply to those working a job while receiving a pension at the same time. This is because pensions are treated the same as income from employment, meaning it is taxed the same too.

D0

D0 is similar to BR but is aimed at anyone whose yearly income exceeds £50,270, meaning you’re charged a higher rate of tax.

Just like the BR tax code, D0 also applies to those taking their pension.

D1

D1 follows the trend into the additional 45% rate with the exact same rules applying.

If you’re working two jobs or working while taking your pension, the D1 Tax code means you’re earning over £125,140 and will, therefore, pay the additional rate on all your second sources of income.

M

As we discuss in our blog about how much you can earn before tax, the main way to reduce your tax bill is through a marriage allowance.

Marriage allowance allows you or your partner to transfer a percentage of your/their personal allowance to the other person.

Couples will make use of this scheme when one earns more than the other.

M is applied to the tax code of the person who is receiving the personal allowance. Think of the M as standing for mo money…

N

N is the opposite of M, meaning you’re giving a percentage of your personal allowance to your spouse. So, if M is more money, N is… not as much money?

In the end, making use of your marriage allowance will mean as a couple you’ll have a reduced tax bill – win-win!

NT

NT is what we all thought 0T was supposed to be. NT means no tax; this is usually used if you’re going through bankruptcy.

It can also be used with non-UK residents who may already be paying taxes in a different country; this is to avoid double taxation.

C

C stands for Wales…

Well, not exactly; it means Cymru (Wales in Welsh).

So simply, the C tax band means your main home is in Wales.

All the tax codes we have already gone through in Wales will simply start with a C; for example, CBR means you pay the basic rate of income on your second job in Wales.

S

S is the same as C except in Scotland. S = Scotland.

There is a slight difference, however, as Scotland has more tax bands than the UK.

Here you’ll find SD2, which is Scotland’s 48% tax charge for those earning over £125,140.

T

The T tax code means ‘other’ and is used to symbolise individuals who have any other calculations to work out their personal allowance.

K

The K tax code means you’re earning some form of income that isn’t being taxed. The K tax code is usually applied to those already paying back tax to HMRC for a previous year and, therefore, can’t be taken again.

You may also find K at the start of your tax code if you’re receiving benefits, either private or government, that you need to pay tax on.

Emergency Tax Codes

This sounds a little dramatic, but emergency tax codes are usually used for a short term while you enter the transitional phase in your career.

There are 3 Emergency tax codes:

W1 – is assigned to you if you’re paid weekly while HMRC figures out how much you should be earning.

M1 – M1 is assigned to you if you’re paid monthly.

X – This means your tax code is unknown. If you have this tax code, you can imagine HMRC’s head office running around in a blind panic, wondering how much of your income is theirs.

Final thoughts

We hope this guide has helped you understand the list of tax codes and what they mean.

In short, there are a lot of tax codes in the UK, but when explained, it’s actually quite simple. The general rule for tax codes is if you have more than one job, things will be different.

But just because it’s simple doesn’t mean it’s easy. Payroll is very time-consuming, which is why hundreds of small business owners prefer to hand the reins over to us.

Want to join them and get your life back?

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Or, get a full breakdown of everything involved in paying staff and getting paid as an employee in our Guide to Payroll.