The letters in your tax code indicate whether you are entitled to the annual tax-free personal allowance. These codes are updated each year and help employers calculate how much tax should be deducted from your salary.
For the current and upcoming tax year, the basic personal allowance is £12,570. The tax code corresponding to this amount is 1257L, which is the most common tax code used for those with a single job, no untaxed income, and no unpaid tax or taxable benefits (such as a company car).
Your tax code might include various other letters and numbers. For instance, letters like "M" indicate that an employee is claiming the marriage allowance, or "S" shows that Scottish income tax rates apply. If your tax code numbers change, it often means your personal allowance has been reduced.
There are also emergency tax codes (W1 or M1), which are used when a new employee does not have a P45. These codes calculate tax based on the current pay period.
If your tax code starts with a 'K', this means deductions for company benefits, state pension, or previous tax owed, exceed your personal allowance. However, the tax deduction for any pay period cannot exceed half of your pre-tax salary or pension.
It is essential to verify your tax code to ensure the correct information is being applied. If you have any questions, we are here to help.