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Tax Codes - What are Tax Codes?

Definition: A tax code is issued by HMRC and is used by your employer to calculate the amount of tax from your salary.

If you are employed and receive a salary or wage from your employer then you will be paying tax and have a tax code. This is issued from HM Revenue and Customs (HMRC) and is made up of combination of numbers and normally one letter.

Break down of the Tax code

The first part is the number, for example 511. The means you can earn £5,110 tax free pay in the tax year, so if your annual salary is e.g. £20,000, then £5,110 will be deducted before tax is calculated. The letter following your tax code will give your employer more information, for example if your tax code is followed by the letter L you get the basic personal allowance for a person under the age of 65, if you have the letters NT after your tax code you are one of the lucky ones as this means no tax on this income.

There are a lot more combinations of letters you could have following your tax code and to find out more you can check the HMRC website.