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South Way Wembley Middlesex HA9 0HF
Contact number – 0203 519 2121
Email Address – hello@benifactsumbrella.co.uk

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What is a Tax Code?

A tax code is issued by HMRC used to calculate the amount of tax to deduct from the gross pay. (Those self-employed workers operating under the CIS scheme are taxed on a different basis). If you have the wrong tax code you could end up paying too much or too little tax. A tax code is usually made up of several numbers and a letter, for example: 944L or K497 and the numbers (when multiplied by 10) explain how much earnings you can have before you pay tax. For the tax year 2014-15 the standard single person allowance is £10,000 which converts to 1000. There are a number of letters that can be added to the end of a tax code however the most common one is L which represents the basic personal allowance.

Other letters used in codes include P, Y, T, and K. An explanation of these is as follows:

P Issued to persons aged 65 to 74 who are eligible to the full Personal Allowance.

Y Issued to persons aged 75 and over who are eligible for the full Personal Allowance.

T Normally tax code 0T (Zero T) means that a person’s allowances have been used up against another source of income, or reduced, and the income will be taxed depending on the level at 20%, 40% or 45%.

K Issued where a person’s deductions (pensions, benefits etc) exceed the personal allowance.

The standard tax code for 2014/15 for those with a basic personal allowance is 1000L.

Other Tax Codes

If your tax code has two letters but no number, or is the letter 'D' followed by a zero, it is normally used where you have two or more sources of income and all of your allowances have been applied to the tax code and income from your main job or pension.

Other tax codes and what they mean:
Code Reason for use:
BR Is used when all your income is taxed at the basic rate - currently 20 per cent
D0 Is used when all your income is taxed at the higher rate of tax - currently 40 per cent
NT Is used when no tax is to be taken from your income or pension


Emergency Tax Code

An emergency tax code is a code that Sprite uses until we have been advised by HMRC to correct your code.

The emergency tax code is set each year and is a number followed by the letter L. The number is the basic Personal Allowance (£10,000 for the tax 2014-15) divided by 10. The emergency code for 2014-15 is therefore 1000L. You should note this is the same as the standard personal allowance as shown above.

Until we are advised of a different code to use Benifacts will allocate each employee joining (without a P45) a standard personal allowance code on a week 1 basis or we shall put the tax code as per your duly filled starter checklist

Week 1 Tax Basis

Week 1 or month 1 emergency codes treat each week or month on its own and give you an equal amount of tax-free pay every payday. As they can't take into account changes in your income or tax which may have happened earlier in the year your tax may not be exactly right at the end of the year. As Benifacts Umbrella will submit an electronic Starter Checklist when you join the company it should not take long for HMRC to notify us of any changes to your tax code.

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