Your Personal Tax Coding Notice Explained

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Expats will soon collect their coding notices from the tax man, but what does the strange jumble of numbers and letters mean?

Recently, tax codes have changed depending on which country in the UK where someone lives.

For expats, the tax coding will appear on a Form P60 from HM Revenue & Customs which lets you know how much pension or salary you have received and how much tax has been deducted.

Other forms carrying the tax coding include a notice to pension administrators or employers telling them how much tax to deduct from your payments, P45s when leaving a job and payslips.

The numbers and letters tell you:

  • Which country sets and collects your income tax
  • How much of your income is not taxed
  • How much income tax you should pay
  • If you are on standard payroll or if special circumstances apply

The numbers simply tell whoever is paying you how much untaxed income you should be paid each year.

For expats with one pension, the code from April 6, 2020 should be 1250 which tells the payer that your tax-free income for 2020-21 is £12,500.

The letters tell the payer how you should pay your tax and will vary depending on if you live or still have roots in England, Scotland or Wales.

Tax coding letters

  • L – If your code is ‘1250L’, you have the most common code for a tax-free personal allowance of £12,500
  • M – This shows that your code includes 10% of your spouse or civil partner’s personal allowance switched under the Marriage Allowance
  • N – This shows you’ve switched 10% of your personal allowance to a spouse or civil partner under Marriage Allowance rules
  • T – HMRC uses this code when more information is needed to give a final tax code
  • 0T – The zero shows you have no personal allowance to offset against this income or whoever is paying you doesn’t have enough details to provide a tax code
  • BR – Basic rate tax (20%) is deducted from all income from this payer
  • D0 – Higher rate tax (40%) is deducted from all income from this payer 
  • D1 – Additional rate tax (45%) is deducted from all income from this payer 
  • NT – No income is taxed

Tax code letters – Scotland

  • S – Income is taxed under at rates set in Scotland because that’s where your main home is located.
  • S0T – This isn’t a slur on your character but the code showing your personal allowance is used, or your new payer has too little information to work out a tax code. Generally, this is a temporary emergency tax code.
  • SBR – Income from this source is taxed at the Scotland basic rate
  • SD0 – Income from this source is taxed at the Scotland intermediate rate
  • SD1 – Income from this source is taxed at the Scotland higher rate
  • SD2 – Income from this source is taxed at the Scotland top rate

Tax code letters – Wales

  • C – Income is taxed under rates set in Wales because that’s where your main home is located.
  • C0T – Your personal allowance is used, or this income source doesn’t have enough data to give a tax code. Generally, this is a temporary emergency tax code.
  • CBR – Income from this source is taxed at the Wales basic rate
  • CD0 – Income from this source is taxed at the Wales basic rate
  • CD1 – Income from this source is taxed at the Wales basic rate

Emergency tax codes

The temporary or emergency tax codes are W1, M1, or X.

You are likely to see these when starting a new job,  if you were self-employed but now have a full-time job, or pick up employer perks or the state pension.

W1 means Week 1, while M1 means Month 1.

If you start a job or receive a pension part way through the year, the calculation will only take account of current income and that week or month’s tax free amount, not the rest of the tax year.

K codes

K codes mean someone is paying tax on an income from another source rather than direct from an employer or pension.

Expect to have a K code if HMRC is collecting unpaid tax from an earlier period from a salary or pension, or if you are receiving taxable benefits.

To figure out taxable pay, multiply the numbers in the coding by 10 and add them to the job or pension income.

For example, K550 with a  £22,000 a year pension means setting the taxable amount at £22,000 plus £5,500 (550 x 10) or £27,500.

Any tax deducted cannot come to more than half the pre-tax pay or pension.

Check your tax code

HMRC runs a free online tax code checker that gives estimates of how much tax someone is likely to pay and how the figure is calculated.

Updating a tax code

Do not assume that HMRC always gets your tax coding right – hundreds of thousands are wrong because they are based on outdated information.

You can tell HMRC about changes that you believe change your tax coding through the free online income tax checker.