Everyone who has tax deducted by their employer or pension provider will have a “code”, for example 1000L, on their payslip. Being able to check it’s correct could save you a lot of money and stress!
For the current tax year most people are entitled to personal allowances of up to £10,000, which is the starting point for most tax codes. If you have no other benefits or income, and no business expenses, you are likely to have a code 1000L. This means that your employer will not deduct tax from the first £10,000 you earn (spread over the year).
If you receive benefits from your employer, for example private medical insurance, a company car, etc these are taxed by amending your code. So, if your employer pays private medical insurance for you of £500, this is deducted from your tax free £10,000 leaving £9,500 personal allowances. Your code would then become 950L. If you also have a company car, with a benefit of £1,500, your personal allowances will reduce to £8,000, and your code is now 800L.
If you pay expenses relating to your employment, for example a subscription to a professional body, these are tax deductible. If you pay a £300 annual subscription this is added to your allowance, so in our example the allowances would go from £8,000 to £8,300 and your code becomes 830L.
Do you have a code with an M1, K, DO, BR or NT in it? Check out next week’s blog to find out what these mean.