Tax Rebates & Refunds

Having difficulty understanding tax codes?

August 21, 2010
Posted in Income Tax — Written by Jennifer

Some people confuse themselves when it comes to tax codes. It is important to understand tax codes and also how they can affect the tax amount that you are liable to pay. Given below are some of the tax codes and how they can be used to calculate tax.

HMRC issues tax codes. They then inform your employer about the codes after which the employer can deduct the amount from your income. This tax is based on the amount calculated from the code.

Some examples of tax codes

The numbers and the letters are meant for a purpose. It is a common format in which the tax codes are formed. The numbers denote the total income that is to be taxed while the letters are used to decide how the income is taxed. 474L is a common example of a tax code. 474P, 475V and 348T are other examples.

Explanation on what the numbers denote

Numbers which are used in tax codes are used to work out the allowance. Calculating the taxable amount is easy when you have tax codes. If your salary is £20,000 per annum and the tax code is 475L, then the tax allowance would be 4759. This amount will be deducted from your salary.

Explanation on what the letters denote

The letter L in tax code 475L stands for basic personal allowance. The letters P and Y are used for old age pensioners.

It is prudent to seek advice from professionals when it comes to tax codes. These codes might be confusing if you are not good at calculations.

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