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Tax Codes Explained

Business : Tax

Many people complain on receiving their PAYE slip each mont that they are paying too much tax. For some this is a general moan about how much income the government takes off them (see interesting related article in the politics section: how to tell if you are still a slave: http://www.tellmehowto.net/howto/tell_if_you_are_still_a_836)

However a surprising number of people do overpay on tax - estimates have placed this figure as any many as 1 in 8 or 12.5% percent of the population.

PAYE is based on the code each employee has from HMRC.

This is made up of a three-digit number that is followed by a single letter.

Every person who pays tax has a personal allowance each year, which tends to increase slightly each year... at time of writing, this is ?4,895 and then ?5,035 for 2006-7. If you then receive benefits such as a company car, these get taken off this allowance.

The tax code you receive is then the same as the first three digits of your allowance - so someone with no deductions will have code 489 followed by a letter.

The simplest code at present is 489L, where the L means that you receive the full personal allowance.

Tax codes ending in 'T' normally mean that you have certain deductions for benefits provided by the company; so ensure you are indeed receiving these and that the deducations are for the right amount!

Note that a 'K' at the end of the code means that your allowance has been completely mitigated by the deductions!


By: Fred

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