What is a tax code and do I have one?

What is a tax code and do I have one?

07/13/2021 - 12:27

If you are employed in the UK, you will have a tax code. Tax codes tell employers and employees how much tax should be taken out of a pay packet before it goes to the employee. If you have more than one job (or income from a private pension) then you’ll have more than one tax code.

Do I have a tax code?

You only have a tax code if you’re an employee or you take a private pension. However, the situation becomes a bit murkier if you are a contractor.

If you’re a limited company contractor you are effectively an employee of your limited company. The chances are that you will take some money out of the business as income, so you will have a tax code.

If you are fully self-employed, you won’t have a tax code. If you are self-employed but you also have a PAYE role, then the PAYE role will have a tax code but the self-employment wont.

Do umbrella workers have a tax code?

If you’re reading this blog, there’s a good chance that you are an umbrella worker.

Working for an umbrella company can be confusing, because working through an umbrella company can sometimes feel like you are self-employed. However, for tax purposes, umbrella workers are considered to be employees of their umbrella company, so they will have a tax code.

Where can I find my tax code?

Every bit of income you have (including private pensions) will have a different tax code. The best place to find your tax code is usually on your payslip, but it will be in other places too, including on your P45, P60 and PAYE coding notice.

If you can’t find any of these documents, then you can always check your tax code online with HMRC.

What does my tax code mean?

Most tax codes have two main components - numbers and letters. 1257L, S1257L, C1257L, BR and K497 are all examples of codes from the current tax year.

The numbers - usually three or four digits - indicate what your tax-free allowance is. This is the amount you can earn in a year before the employer needs to deduct tax.

The size of your allowance depends on your income and whether there are any deductions, like a company car, or additions, like a pension contribution.

If you just have one employer and no additional benefits, your tax code should have the number 1257 in it. This refers to the standard tax free allowance of £12,570.

A number of different factors dictate the letter that you see in your tax code. It usually refers to the rate at which your employment income is being taxed and any unusual circumstances affecting your tax code. You can see a breakdown of all the letters on the HMRC website.

For more information about tax codes and working through an umbrella company, speak to a member of the team today. Call: 0800 121 6513.