14 Aug Understanding Your Tax Code on your payslip.
What is a Tax Code?
Your tax code is used by your employer or pension provider to work out how much income tax you will pay from your salary, wages or pension. Your tax depends on how much you earn. Currently the personal tax allowance for April 2019 to April 2020 is £12,500.
This means you can earn £12,500 tax free, anything after is taxed depending on how much you earn and can vary depending on other tax allowances such as marriage or blind persons allowance.
There are many tax codes and they all start with a number followed by a letter. Currently the most common is 1250L. The number signifies the tax free allowance and the letter categorises the benefits or allowances you may have.
If your Tax Code has W1 or M1 at the end it means its an emergency Code assigned by HMRC.
Sometimes when you start a new job or you are moving from self-employed to employed you will be on an emergency tax code. These are always temporary. Click here to find out about updating your tax code in this instance.
Checking your Tax Code
Your Tax Code is assigned by HMRC and is used by your employer so they know how much to deduct from your wages and salary for PAYE. You will find your code on your payslip, P45 or P60.
You can check your tax code and find out more about the letters and their meaning by clicking the link to the HMRC website.
PAYE Coding Notice
You may in January or February receive a PAYE coding notice. This lets you know what allowances and deductions you are entitled to. If you don not agree with the notice you must contact HMRC to confirm as soon as possible to ensure you are on the right Tax Code in April.
Tax Free Allowances
These can include:
- Personal Allowance
- Blind Persons Allowance
- Pension Contributions
- Gifts to Charity
- Interest Payments on qualifying loans
You must tell HMRC about any change that affects your tax. Find out how to contact HMRC by clicking the link here.
Employers and Tax Codes
When you take on an employee you normally work out their pay using the tax code from their P45. This is usually updated at the start of the tax year in April.
Outsourcing your payroll function ensures that your employees payroll is calculated correctly and filed on time. At EA Assist we offer a full payroll service to suit your needs. Whether you have 1 or 100 employees we can manage your payroll and ensure everything is filed accurately and on time.
Contact us now on 01379 646943 to find out about outsourcing your payroll to EA Assist or visit our payroll page here.