There are a number of different tax codes currently in use, with different effects on the tax calculations.
Sage Instant Payroll automatically calculates tax based on the tax codes, and you can't override these calculations.
Valid tax codes
- 1250L - Individual personal allowance.
- BR - Basic Rate. No free pay allowance. Gross pay is taxed at 20%.
BR codes ignore the pence on the gross pay. For example with earnings of £250.75, the tax is calculated on £250, giving a tax due value of £50 not £50.15. An employee may be given this tax code for a second job.
- NI or NT - No tax. You should only use these codes if you're instructed to do so by HMRC.
- D0 - 40% tax with no free pay allowance. It can be either cumulative or non-cumulative. This is D zero, rather than DO.
- D1 - 45% tax with no free pay allowance. It can be either cumulative or non-cumulative.
- 0T - No free pay allowance. Tax is otherwise calculated as normal, at 20%, 40% or 45% depending on the employee's earnings. This is zero T, rather than OT.
- K code - The prefix K, for example K100, means that the pay adjustment is added to the taxable pay, rather than subtracted. This effectively increases the amount of earnings on which the tax is calculated. It's usually used for directors and employees whose additional benefits outweigh their personal allowance, for example, company cars, BUPA etc.
- M suffix - The employee has an increased personal allowance as part of Marriage Allowance legislation. For more information, go to www.gov.uk/marriage-allowance
- N suffix - The employee has a decreased personal allowance as part of Marriage Allowance legislation. For more information, go to www.gov.uk/marriage-allowance
- P suffix - Full personal allowance for those aged 65-74.
- S prefix - The employee pays the Scottish rate of income tax.
- T suffix - Used if any items of a tax code are under review by HMRC.
- Y suffix - Full personal allowance for those aged 75 and over.
You can find further information about how tax is calculated on these tax codes from our support guide. Read more >
You can easily apply a tax code change you've received through HMRC secure mailbox.
- On the toolbar, click RTI Submissions.
- Click HMRC Secure Mailbox.
- Click New Mail.
The P9(T) notice downloads to your mailbox.
- Click Form P9(T).
- Click Open then click Apply.
- Click Yes then click Close.
Apply tax code change manually
- Click Pay Employees then click Check pay date.
- Ensure your pay date is set in the 2021/2022 tax year then click Save pay date.
- Click Employee then click Maintain existing employees.
- Select the relevant employee then click the Employment Details tab.
- In Tax Code, enter the new tax code, for example, 1185L.
- Click Save details then click Close Existing Employees screen.
Incorrect tax calculation
If you're unsure of how to calculate tax manually, you can check a calculation using HMRC's PAYE tax calculator.
If you think a tax calculation may be incorrect, you can use our support guide to help you find out why.