Tax Rebates & Refunds

A quick guide to tax codes and how they are calculated

January 27, 2011
Posted in Income Tax — Written by Jennifer

Tax codes enable employers and pension providers to calculate the amount of tax that is supposed to be deducted. They cannot afford to make mistakes with tax codes as this could lead to you paying more or less tax than you are supposed to- which could lead to a number of problems. A combination of letters and numbers forms a tax code.

The calculation of tax codes

The first step is to add up all of your tax allowances. This may include personal allowance and job expenses. The second step involves addition of untaxed interest, part time income and employment benefits which can be taxed. The tax deductions are then subtracted from the total allowance to arrive at the total tax free earning capacity allowed per year. The last step is to verify the calculation. This is done by dividing the tax free income by ten before adding it to the suitable letter as per your tax code.

You’re not alone if you find tax codes confusing and if you are under any doubts or have any queries you should seek guidance from a professional rather than taking any chances.

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