Tax Rebates & Refunds

Understanding the various tax codes

August 31, 2010
Posted in Income Tax — Written by Chris

People often confuse themselves when it comes to understanding and using tax codes. Tax codes affect the amount that you are liable to pay. The HMRC is a body that issues the different tax codes. They inform your employer about the codes after which the employer can deduct the amount from the income. The amount paid as tax is calculated on the basis of the codes provided.

Mentioned below are some of the tax codes that can be used to calculate tax.

Examples of the different tax codes

The most common example of a tax code would be the 474L. 348T, 475 V and 474P are some of the other types of tax codes that are used by the HMRC and employers. All tax codes have a different meaning. The numbers in the tax code is used to denote the total income that is to be taxed and the letters indicate on how the income should be taxed.

What do the numbers mean?

The number used in the tax codes are used to work out the allowance of the individual. A tax allowance equals to X 10 + 9, in mathematical terms. For example, if your annual salary is £30,000, then the total amount to be deducted from your salary would be 475 (10 + 9) which amounts to 4759. Calculating the taxable amount is easy when you have tax codes.

What does the letter mean?

Every letter in a tax code has a different meaning. For instance, the letter L in 474L stands for the working class people, while the letters P, V and Y are used for Old Age Pensioners (OAPs).

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