Tax Rebates & Refunds

Tax codes – How do they work?

March 28, 2011
Posted in Tax Rebates — Written by Chris

Being on the right tax code is really important. The amount that is deducted as tax from your salary or pension is determined by your tax code. If your tax code is not correct you may be paying more tax than you need to. A tax code is a series of numbers and a letter, for instance 117L. If you want to know the total income that is tax free, all you have to do is replace the letter with the number ‘9’. For example if your tax code is 647L, your total income before you pay the tax would be £6479.

Different tax codes

The letter L is used for those who are entitled to a personal allowance. This letter is also used for emergency tax codes. The letters P and Y are used for people in the age group 64 to 75 and 75 and above respectively. People who have a tax code with these letters are entitled to a full personal allowance. T is for those who are having their tax codes reviewed. The letter K is used in a tax code if the allowance is supposed to be less that the untaxed income.

If a tax code has two letters or the letter D followed by a number it means that the person has two or more sources of income and all of the personal allowances are applied to the tax code as well as the main income amount. The code BR is applied when the rate of income tax is at 20 percent which is the basic level. D0 is used when the rate is at 40 percent, D1 is used when the tax rate is 50 percent. NT is applied when no tax has to be deducted from your salary or pension.

No Comments (Leave comment »)

No comments yet.

Comment RSS | TrackBack URL

Leave a comment