A-Z of tax codes

Millions of payslips are issued each month and most taxpayers will be used to seeing the collection of numbers and letters that make up a tax code. However, many people are unaware of what that code means and, consequently, will not be able to determine whether their tax code is correct.

Each year, millions of tax code errors occur and, left uncorrected, can cost thousands in overpaid tax each year. Here, tax preparation specialist, David Redfern, explains how HMRC determines your tax code and how they calculate what tax should be deducted from your income.

Tax codes

Tax codes are used by your employer or pension provider to work out how much tax to deduct from your income, whether wages or pension. Unless you are wholly self-employed, unemployed or receive the state pension only, you will have a tax code that is issued by HMRC. However, because tax codes can change throughout a tax year due to changes in employment or personal circumstances, millions of tax code errors occur each year.