How to check and understand your tax code

It might not sound especially exciting - but your tax code dictates how much you have to pay the government out of your salary or your pension. So if you don’t understand your tax code and how to check if you’re on the right one, you could be paying too much tax (which nobody wants) or too little tax (and that could get you into trouble).

Read on to find out what those digits on your pay slip mean, why it matters, and what to do if your code is wrong.

How do I check my tax code?

Tax codes are used to calculate the taxable income of people who pay tax through Pay As You Earn (PAYE) and/or on a private pension. So if you’re fully self-employed, not in paid work, or retired with only a state pension, this won’t apply to you.

The easiest way to check all of your tax codes at once, and how they were calculated, is on your PAYE coding notice (also known as a P2). These are sent out by HM Revenue & Customs (HMRC), but not everyone gets one. So if you didn’t get one this year, here’s where else to look:

• Your payslip. If you are employed by someone else, in most cases you are supposed to receive regular payslips showing your pay and how it is worked out, including your tax code. (You can read more about payslips on the ACAS website.)
• Other HMRC forms, like your P45 (the one you get when you leave a job), or your P60 (an annual statement showing the amount you earned and how much tax you paid on it).
• A pension advice slip, if you receive a private or occupational pension.

If you don’t have any of these documents, you can check your tax code online at gov.uk. You'll need to sign in, or create an account if you don’t have one.

How do I know if I have the correct tax code?

Your tax code is usually made up of numbers and letters. For example, the default tax code for this financial year (2022-23) is 1257L. This is expected to stay the same until 2026.

That’s because the standard tax-free personal allowance this year is £12,570. The number in your tax code is your tax-free personal allowance - that is, the amount of money you can earn before you have to start paying tax on it - minus the zero on the end.

Your personal allowance may be bigger or smaller than £12,570, depending on your income, whether this is your only source of income, any additional allowances you’re claiming, and some other circumstances such as whether you receive any benefits from work, such as a company car. So, for example, if your personal allowance was £15,000, then the number in your tax code would be 1500.

So what about the ‘L’ in the tax code given above? If you see that on your payslip, it means that you’re entitled to the standard tax-free personal allowance for that job.

There are many different letters that could appear in your tax code, in addition to or instead of the numbers. They may refer to your age, your tax rate, where you live, and/or any unusual circumstances that apply to you. You can see a full list of what each letter refers to at gov.uk.

You will have more than one tax code if you have more than one job or pension - and this is where it can get a little complicated.

HMRC will apply your tax-free personal allowance to the job or pension they consider to be your primary source of income. Other sources of income will be taxed at the basic rate (20%), higher rate (40%) or additional rate (45%), without any tax-free allowance.

So, for example, if you have a full-time job that pays £25,000 a year, and a part-time job that pays £10,000 a year, then your tax-free personal allowance will be ‘used up’ on the full-time job, and you will pay tax on everything you earn in the part-time job. Your payslip for the part-time job will probably show a ‘BR’ tax code, meaning ‘basic rate’.

What if my tax code is wrong?

If your tax code doesn’t reflect your situation, it might be because you’ve been given a temporary emergency tax code, for example if you’ve started a new job. Once your new employer has details of your previous employment or pension, HMRC should correct your tax code automatically.

But if your tax code seems wrong and it’s not for an obvious reason like the one above, contact HMRC.

If you’ve paid too much tax, HMRC will write to you to let you know that you are due a refund. If it’s an overpayment in the current tax year, they will usually adjust your tax code so you have less tax due for the rest of the year. If you overpaid in an earlier tax year, they will usually send you a cheque or you can ask to have the money paid directly into your bank account.

If you have underpaid tax, HMRC might send you a bill or issue you with an emergency tax code, so that you pay more tax for a while.

 

Many of us have experienced changes to our finances since the start of the pandemic. If you’ve changed jobs, or if your income has gone down, it’s especially important to check that your tax code reflects your situation, and that you’re not paying more than you need to.