| | Description | A tax code determines how much tax to deduct from an employee’s pay throughout the year. You record an employee’s tax code in their employee record. Tax codes consist of numbers and letters. The number represents the employee's personal allowance. This is the income they can earn without paying tax. HMRC issues an employees tax code based on their circumstances. Change tax codes only when instructed by HMRC.. For more information, refer to the HMRC Guide on Tax Codes. You can also refer to HMRC Employers: general enquiries.
|
| Resolution | ▼Tax codes in Payroll | L suffix | L means the employee:
- Was born after 5 April 1948
- Gets to the basic tax-free personal allowance
 NOTE: This is cummulative. The calculation takes into account previous earnings in the tax year every pay run. | | BR | Basic Rate of income tax applies:
- Gross pay taxed at 20%
- The employee has no basic tax-free allowance
- Usually used in conjunction with a W1/M1 flag
NOTE: Statement C on an employee P46 means they already have another job or receive a State pension. Payroll applies a BR tax code to their pay calculation. | | NT | No Tax:
- HMRC confirmed an employee is resident abroad but working for a UK employer
NOTE: You should only use this tax code if you’re instructed to do so by HMRC. | | D0 | The employee’s taxable earnings are subject to the higher rate of income tax:
- 40% tax with no basic tax-free allowance
- It can be either cumulative or non-cumulative
| | D1 | The employee’s taxable earnings are subject to the additional rate of income tax:
- 45% tax with no basic tax-free allowance
- It can be either cumulative or non-cumulative
| | 0T | Income tax applies to the employee’s taxable earnings:
- No basic tax-free allowance because it is already used up or reduced to nil
- Calculates tax as normal. 20%, 40% or 45% depending on the employee’s earnings
NOTE: You can apply 0T to a new employee if they can't provide you with a P45, or similar pay information | | K code | The employee has extra income, other than their regular pay which they must pay tax on. For example, company cars, BUPA:
- If the personal allowance doesn't cover the extra income, HMRC will use a K code for the employee
- By law, when an employee has a K code, their tax liability can’t exceed a set percentage of their gross taxable pay. This prevents the employee from having a tax liability that exceeds their gross pay. Any excess tax liability carries forward to the next pay run
NOTE: The pay adjustment adds to the taxable pay, rather than subtracted. This increases the amount of earnings on which the tax calculates. | | M suffix | The employee receives a higher personal allowance. This is due to the Married Couple's Allowance legislation. Refer to the HMRC guide Married Couple's Allowance. | | N suffix | The employee receives a decreased personal allowance. This is due to the Married Couple’s Allowance legislation. For more information, Refer to the HMRC guide Married Couple's Allowance. | | P suffix | The employee is between 65 – 74 years of age. Entitled to the basic tax-free personal allowance. | | T suffix | HMRC need to review the employee's tax code. | | Y suffix | The employee is 75 years of age or over and entitled to the basic tax-free personal allowance. | ▼Week 1/Month 1 Tax codes with a W1 or M1 suffix ignore accumulative values. The tax calculates using the gross pay for the current period only. The tax allowance is for the first week or month of the tax year, regardless of the actual tax period. If the tax calculations should be non-cumulative, choose the Week 1/Month 1 check box. It is in the employee record. If you untick the Week 1/Month 1 check box in a later pay run, their tax liability will recalculate. It uses year to date totals and the employee tax liability adjusts. ▼Invalid Tax Codes If you enter an invalid tax code in an employee’s record a warning message appears. You won’t be able to save the record until this is resolved. The warning message appears for the following reasons: - You’ve entered a letter, but it needs a number. For example, if you need to enter tax codes D0 or 0T, check that you’re using the number zero, not the letter O
- You’ve entered a suffix of A or H. These tax codes haven’t been valid since 6 April 2004
- You’ve entered NI. Used for students when not treated as regular employees. HMRC no longer treat students this way. Also, the associated Form 38(S) is no longer used
- If you get a tax code change letter from HMRC stating the new tax code is K48 X, input K48 in the tax code field. Don't add X in the tax code field. The X means you need to tick the Week1/Month1 option
If you’ve checked the above errors and you still don’t know what the correct tax code is. Contact your local tax office to get the correct tax code. [BCB:299:UKI - Personal content block - Dane:ECB] [BCB:304:UKI - Search override - Payroll UK:ECB] [BCB:276:UKI - hide back button:ECB] |
| Related Solutions | Read our article: |
|