If you are employed under PAYE then HMRC will issue you a tax code which tells your employer how much tax to deduct from your income before paying you. A tax code is usually made up of several numbers and a letter, for example: 117L or K497. The tax code spreads your tax-free amount equally over the year so that you get roughly the same take-home pay or pension every month. To work out your tax code your tax allowances are added up and the total amount of income you've not paid any tax on deducted. The amount you are left with is the total of tax-free income you are allowed in a tax year.

The code is usually made up of several numbers and a letter. In general this represents the amount of income (divided by ten) that you can receive before you pay tax. Therefore if you are entitled to ٤,475 before paying tax, then your tax code will be 647L. It follows that most codes are numbers although some are just letters, for example BR (Basic Rate) which tells the employer to deduct tax on all income at the basic rate, or NT (No Tax) usually for non-resident individuals who are not liable to UK tax on their earnings. If you are entitled to the basic Personal Allowance then L is added to the number. If you are entitled to a higher allowance due to age then P (65 to 74 ) or Y (over75 ) are added.

You will be given a K code if your deductions are more than your allowances. If you're starting your first job your employer will give you a P46 to fil in and they will then work out the tax you owe. When HMRC deal with your P46 they will revise your tax code and the tax paid will be adjusted accordingly. BR means your pay from that employment will all be taxed at the basic rate, normally because you have a second job or pension. D0 signifies that all your income is taxed at the higher rate, again usually because you have another source of income.

If you earn more than £100,000, your tax code also allows for the income-related reduction to the Personal Allowance. If you earn more than £150,000 from your main source of income, tax is deducted at 50 per cent as appropriate. It may be that your tax may well need to be adjusted when your self assessment tax return is submitted so that gift aid or pension contributions are treated properly. Whatever your circumstance, if you are unsure whether or not you are on the right tax code, you should first contact your payroll department. If you have an accountant, then they can help you to check whether it is correct. Most of the time, codes are accurate but it's always worth checking to make sure.