Tax Codes in the UK Explained

Everyone in the UK who pays income tax will have a tax code that will vary from time to time. You might not have noticed or paid much attention to it, but it will be there on your pay slip.

So what does it do and what does your code mean?

Well it is simply used by your employer to work out how much tax should be taken off your pay (or off your pension for pension providers).

The wrong tax code can therefore lead to you paying too much tax and - yes this is technically possible - too little tax too!

The code will be a few numbers and a letter either at the start or at the end of the code, so it might be 123L or K123 for instance.

If you have the first format - numbers then a letter, then you can multiply the number in your code by ten to get the total amount of income you get tax free in a year.

The letter in the code shows how the number is altered if there are changes to allowances by the chancellor in the budget.

For instance, L is for those who qualify for the basic personal allownace, P is for those aged 65 - 74 and so on; L is the most common.