Check you're on the right tax code

1. What is my tax code?

Your tax code determines how much tax you pay, taking into account your personal allowance and any taxable benefits you receive.

You can find your tax code on your last P45 or on your PAYE coding notice sent out by HM Revenue & Customs at the start of each tax year.

2. How to work out what it means

Your tax code is made up of several numbers and a letter: for example, 117L. You can calculate the total amount of income you can earn in a year before paying tax simply by multiplying the number by 10.

The letter in your tax code refers to the various allowances or benefits you might be entitled to. For example, L means that you get the basic personal allowance, while P means you are between 65 and 74 and get the full personal allowance.

3. Check you're on the right code

To be sure you're on the right code, you need to check your coding notice – this is normally sent out in January or February by the HMRC. Make sure all the allowances and reliefs you're claiming are shown here, as this will determine your tax code.

You also might have to pay tax on any non-cash benefits from your employer, such as a company car or health insurance.

4. Emergency tax codes

Some people are put on emergency tax codes when they start a new job. While on this code, you'll only receive the basic personal allowance (currently £6,475 for the tax year 2009/10).

Once HMRC has issued you with a tax code, your employer should start to deduct the correct amount of tax, and you should also receive a refund.

5. Wrong code?

If you think you're on the wrong code, contact your tax office. If it is incorrect, you may able to claim up to six years' overpaid tax (dropping to four years in 2012). If you've paid too little, HMRC will take the amount from your allowance for the next tax year.

Make sure you contact HMRC if your circumstances change – for example, if you become self-employed or get married – as this could affect the amount of tax you pay.

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Your Comments

One of my pensions is taxed at the rate decided by the Inland Revenue, the other is taxed at Basic Rate. Why is this and what exactly is Basic Rate?

 It is important to be aware of the emergency tax code. If your employer is not on the ball with payroll and you are not clear on the tax system you could be paying way of the odds for some time if you do not raise the issue. 

I am 61 - I have a tax code 165L for a part time job and I receive a state pension. I also have a small teacher's pension and another partime time job which are both charged at basic rate tax. My total income is around £18000. Will I get a tax rebate?