HRMC Tax Codes

HRMC Tax Codes

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  • Post published:February 5, 2021

What is My HRMC Tax Code?

There is much confusion about HRMC tax codes and rarely do employees challenge them. This could mean on your release you could be paying the wrong amount of tax and not getting the benefit of the correct tax code.

HMRC issue a PAYE code, (pay as you earn), to your employer to inform them of the tax-free earnings you are entitled to in a particular pay period. Your employer is not informed how this code has been calculated and therefore cannot really comment whether it is correct.

Starting your New Employment & HRMC Tax Codes

When you start employment after release, you will be asked to complete a ‘New Starter Form’ (see below). </ br>
You should then receive a communication from HMRC called a ‘Notice of Coding’ (Form P2), if you do not get this form you should request one. This tells you how your HRMC tax code has been calculated.

What makes up a Tax Code?

The main part of the tax code is the annual tax-free allowance. In the current tax year 2020/21 this amounts to £12,500.

This means you can earn this amount of tax without paying tax and will be denoted on your payslip as 1250L.

On monthly pay this personal allowance is divided by twelve meaning that £1042 is set against the pay you receive in that month with any excess being taxed. On a weekly basis the tax-free pay is £240.

Additions to your personal allowance (examples):

  • Job expenses
  • Use of home as office
  • Professional subscriptions

Reductions in your personal allowance

  • Your employer provides taxable benefits
  • You owe tax from an earlier tax year
  • You receive other taxable income
  • Taxable savings interest

One of the biggest errors I see when undergoing tax reviews for clients is that individuals claim multiple personal allowances when they work for several employers within a tax year. You are entitled to one personal allowance in a tax year no matter how many employers you have.

What do the HRMC Tax Code Letters Mean?

Below is a list of HRMC tax codes and how tax is deducted, and when this code is normally used:-

  • OT From all income – there is no Personal Allowance When an employee hasn’t given a P45 or enough details
    to work out their tax code
  • BR From all income at the basic rate

For a second job or pension

  • C From income in the Welsh tax bands

For an employee whose main home is in Wales

  • CBR From all income at the basic rate in Wales

For a second job or pension

  • D1 From all income at the additional rate

For a second job or pension

  • L At basic, higher and additional rates depending on the amount of taxable income For an employee entitled to the standard tax-free personal allowance
  • M At basic, higher and additional rates depending on the amount of taxable income For an employee whose spouse or civil partner has transferred some
    of their Personal Allowance
  • NT No tax is deducted Very specific cases, for example musicians who are regarded as self-
    employed and not subject to PAYE
  • S From income in the Scottish tax bands
  • For an employee whose main home is in Scotland
  • K Reduces your tax-free allowance For an employee who has for instance outstanding tax

Getting your Tax Code Right

When starting a new job after release and you have not got a P45 you employer should ask you to complete a ‘new starter checklist’. This will allow your new employer to utilise an ’emergency tax code’ whilst they await the final code from HMRC.

Your employer will need to know your employment history:

  • This is you first job since last 6 April and you have not been receiving JSA/ESA or incapacity benefit
  • Since last 6 April you have had another job or have received JSA/ESA or incapacity benefit you do not receive a pension
  • You have had another job/received a pension

Remember in the current tax year your tax code should be 1250L if yours is a straightforward case. Watch out for BR codes that give you no personal allowance!
Also be careful of W1 (week 1) and M1 (month 1) emergency tax codes that appear at the end of a tax code.

These codes mean that you only get the personal allowance for that month/week and not on cumulative basis.

Where you leave prison during part way through a tax year you will be entitled to your personal allowance from the 6 April in that year.

Get Your Tax Affairs in Order Pre-Release

Remember to contact The Tax Academy CIC to review your tax affairs to ensure they are up to date. There is nothing worse than being released from prison and finding that you have tax penalties and tax debt that need to be resolved with HMRC.

Please contact Paul Retout on 01824 704535 or write to me:
The Tax Academy CIC
Unit 4, Ffordd Yr Onnen
Lon Parcwr Business Park
Ruthin
Denbighshire
LL NJ
When released and you are not happy or do not understand you tax code you can contact ‘The Tax Academy CIC’ to check it for you.

Family members can submit a request form here.