What is the 2021-2022 tax code?
The most common 2021-22 tax code for Basic Rate taxpayers with one source of income is:
1257L
The number refers to the new Personal Allowance rate for 2021-22, which is £12,570. And the ‘L’ means that you’re entitled to this amount of tax free income.
But why is it important and what do all the other letters mean?
Why is understanding my tax code important?
Your tax code tells you, your employer and HMRC how much tax you’re paying. If it’s wrong, you’re not paying the right amount of tax. And it’s up to individual taxpayers to check.
Paying too much tax means that HMRC owe you money back. Not paying enough means that you’re in for an unexpected extra tax bill.
When does my new tax code start?
Your new tax code applies from the start of each tax year on 6th April and runs until the following 5th April. So the 2021 tax code started on 6th April 2021 and runs until 5th April 2022.
The Personal Allowance amount is announced in the annual Budget and stays the same for the whole tax year. So the number on your tax code will remain the same. But that doesn’t mean that the letters won’t change. If your employment or financial circumstances change at any point during the tax year, then your tax code will change to reflect that.
How do I know about my tax code?
At the start of every new financial year, HMRC write to all PAYE taxpayers to tell them their new tax code. This is called a P2 Notice of Coding.
You can double check your tax code using HMRC’s free tool. You can’t use this if you pay tax through Self Assessment, it’s just for PAYE taxpayers.
What do the letters in my tax code mean?
Some of the letters in your tax code will appear before the number and some after. Here’s what some of the more common letters for taxpayers in England and Northern Ireland mean:
- L: You get the tax free Personal Allowance
- N: 10% of your Personal Allowance is transferred to your spouse or civil partner
- M: You get 10% of your civil partner’s or spouse’s Personal Allowance
- T: Your income is over £100,000 and so you’re Personal Allowance amount is reducing by £1 for every £2 over £100,000. The number of your tax code will change to show how much Personal Allowance you’re still entitled to and this will be followed by ‘T’.
- OT: Your income is £125,140+, so you have no Personal Allowance entitlement. All your income is taxable at the corresponding rate.
- BR: All income is taxable at the Basic Rate, usually applies if you have multiple jobs or pensions
- D0: All income is taxable at the Higher Rate, if you’ve more than one job or pension
- D1: All this income is taxable at the Additional Rate, for more than one job or pension
- NT: No tax is payable on this income
- K: You have untaxed income (like a work benefit) that’s worth more than the Personal Allowance
Tax Code letters in Scotland
Since the establishment of the Scottish Parliament, the Scottish government sets its own income tax bands, and this affects your tax code. The Personal Allowance amount remains the same, so the number won’t be different. But the other codes are preceded by the letter ‘S’ to show it’s a Scottish rate. There are five different tax bands in Scotland, so there are income tax codes to represent them.
- SBR: Scottish Basic Rate applies
- SD0: Scottish Intermediate Rate applies
- SD1: Scottish Higher Rate applies
- SD2: Scottish Top Rate applies
- SOT: Your Personal Allowance has been used up, or you need to give your employer the necessary details so you can get a correct tax code
Tax Code letters in Wales
At the moment, the Welsh government are using the same income tax rates as England and Northern Ireland. But, as a devolved government, they also have the power to change that, so there are different Welsh tax code letters.
‘C’ represents Wales, not ‘W’, because Cymru is Wales in Welsh.
- C: show that you’re a Welsh taxpayer
- CBR: Welsh Basic Rate applies to all this income
- CD0: Welsh Higher Rate applies
- CD1: Welsh Additional Rate applies
- COT: you’ve used all your Personal Allowance
Emergency Tax
The emergency tax codes for 2021-22 are 1257L W1, 1257L M1 and 1257L X. Your employer will use one of these codes when you first start a job, if you’re getting the State Pension or company benefits or you’re employed after being self employed.
These codes mean that you pay tax on everything you earn over the Personal Allowance. They’re a temporary fix until your actual tax position is identified and then your tax code will be adjusted accordingly.
What do I do if my tax code is wrong?
You need to get in touch with HMRC as soon as possible to sort it out. It’s never a good idea just to leave things in the assumption that HMRC will eventually notice and change it themselves. This might happen and you might have a substantial extra tax bill to pay, if you’ve not been paying enough tax. No one want that.
While you’re thinking about tax stuff, make sure you’re claiming all the work expenses and allowances you’re entitled to. They’re not just for self employed people (the rules apply to everyone who pays tax). We’ll run you through it, so you don’t have to bother understanding all the regulations yourself.
