Tax codes

What is it?

Your tax code identifies how much tax free allowance you have per tax year. Your tax free allowance is the amount of income that you can earn during the tax year before you start paying income tax. The tax year runs between the 6th April to the 5th April each year. The current tax year being 2001/2002.

Who receives it?

Everyone will have a basic tax free allowance. The actual amount will depend on your specific circumstances. In general many people with no other taxable benefits at work will have a standard tax free allowance. Anyone receiving taxable benefits from their employer will be subject to an adjustment to their tax code. For example if you have medical benefits or a company car you will have your tax code adjusted. Your tax code can be located on your monthly payslip. If you are about to start your first job use the following guideline below. Please note that if you have taxable benefits of any kind your tax free allowance will be reduced.

To help you out the following is a list of common tax codes:

Single Persons standard tax code = 453L

Any tax code with a suffix letter of L,H, & T.

A tax code with a prefix letter of K means that your taxable benefits from employment exceeds your tax allowance and thus your taxable income will be greater than your gross income. This usually occurs when you have a number of high value benefits such as a company car. You need to enter the negative value of your tax code (eg. K115 = -115).

The current tax model does not take into account D0 or BR tax codes.

How does it work in real life?

Each month you will notice that you have a tax free allowance that accumulates throughout the tax year running from April to March. This is calculated by taking your tax code excluding the letter , multiplying this by ten , then adding a nine. Finally divide this by 12 and round up the result to two decimal places.

Tax Allowances

Standard Allowances
-Personal £4,535
-Blind Persons £1,450

Allowance for those aged between 65-74
- Personal £5,990
- Married Couples £5,365
- Income Limit for Full Relief ** £17,000

Allowance for those aged 75 and over
- Personal £6,260
- Married Couples £5,435
- Income Limit for Full Relief ** £17,000

Children's tax credit
- £5,200 - value of allowance is £520 but it is reduced where the main earner of the familiy is a higher rate tax payer.

** Allowances are reduced by £1 for every £2 of income in excess of the limit until the standard allowance is reached.

To work out your tax liability you will need to calculate your taxable income. This is achieved by taking your gross income and deducting your tax free allowance.

Then apply the following rates on the remainder.           

For example an employee earning £24,000 with a standard single persons allowance of £4535 (453L) will pay £4,135 as income tax, calculated as follows:

£24,000 - £4,385 = a taxable income of £19,615

Therefore apply tax rates on £19,615: