These are two of the questions I am often asked in respect of a person's coding notice.
Normally the first time someone realises their tax code has changed is at the end of the month when they receive their monthly pay.
Just before the start of the tax year, HMRC will issue a tax code to your employer or pension provider to work out how much Income Tax to take from your pay or pension for the coming tax year. Also any changes that occur within the year that HMRC are made aware of, or you advise them of, will result in an amended coding notice being issued within that tax year.
The majority of people's tax codes usually start with a number and end with a letter. For the current tax year most people who have only one job or pension with no other adjustments will have a tax code of 1150L .
The numbers indicate how much tax free income you can earn in the year. This is worked out by taking the Personal Allowance for that tax year and deducting things like:
a company car
other income you haven't paid tax on
As well as deductions, you may have items that are added to your personal allowance, such as:
gift aid donations
personal pension payments.
What is left is your tax free income; however remember the last digit is removed.
The letter at the end of your tax code reflects your situation and how it affects your Personal Allowance, most people have an L at the end, which is the standard, but you may see a BR - basic rate tax to deduct or NT – no tax to deduct.
As mentioned above, if you know something has changed in your circumstances then you need to let HMRC know as soon as possible. Or if HMRC are advised of a change in your circumstances, they will change your coding notice. This doesn't mean it's right though and it may result in too much or too little tax being collected.
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