{"id":7238,"date":"2024-11-01T09:41:11","date_gmt":"2024-11-01T09:41:11","guid":{"rendered":"https:\/\/cloud9accountingteam.co.uk\/?p=7238"},"modified":"2024-11-01T09:41:11","modified_gmt":"2024-11-01T09:41:11","slug":"everything-you-ever-wanted-to-know-about-paye-codes-everything-you-ever-wanted-to-know-about-paye-codes","status":"publish","type":"post","link":"https:\/\/cloud9accountingteam.co.uk\/sk\/everything-you-ever-wanted-to-know-about-paye-codes-everything-you-ever-wanted-to-know-about-paye-codes\/","title":{"rendered":"Everything you Ever Wanted to Know About PAYE Codes"},"content":{"rendered":"
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Pay As You Earn (PAYE) is an integral part of the UK income tax system. But what do the PAYE codes issued by HMRC to you and your employees actually mean?<\/p>\n

Here\u2019s our lowdown on PAYE codes and how they help you understand your tax allowance and the amount deducted in tax on your monthly salary and income.<\/p>\n

PAYE codes and what they tell you about taxable pay<\/strong><\/p>\n

When individuals are paid in whole or in part through a payroll, income tax is deducted from each payment part and that tax then paid to HM Revenue & Customs (HMRC).<\/p>\n

Generally, some of the income is tax free, and HMRC tells you (the employer) how much is tax-free by issuing a tax code. The tax code is in two parts:<\/p>\n

A number which usually indicates the tax-free amount that can be paid \u2013 The numerical part indicates the individual\u2019s personal allowance, and is one-tenth of the annual tax-free amount.<\/p>\n

And an alphabetical suffix which provides further information \u2013 the most common code is 1257L where the 1257 is one-tenth of the normal annual tax-free personal allowance of \u00a312,570. The \u2018L\u2019 simply means that it\u2019s the standard allowance.<\/p>\n

The \u00a312,570 equals \u00a31,047 per month for an employee. So, ignoring National Insurance (NI) and any other factors, this employee earning \u00a32,500 would pay tax of (\u00a32,500 – \u00a31,047 @ 20% =) \u00a3290 per month.<\/p>\n

Other alphabetical suffixes and what they mean<\/strong><\/p>\n

‘0T’ – A code of \u20180T\u2019 means there is no tax-free amount to be taken into account. All earnings are subject to basic, higher and additional rate tax, depending on the total earned by the employee.<\/p>\n

‘BR’ – A \u2018BR\u2019 code means that all earnings are taxed at the basic 20% rate.<\/p>\n

‘D0’ – A \u2018D0\u2019 code means that all earnings are taxed at the 40% higher rate.<\/p>\n

‘D1’ – A \u2018D1\u2019 code means that all earnings are taxed at the 45% additional rate.<\/p>\n

‘M’ – ‘M\u2019 denotes that the employee is in receipt of the marriage allowance from their partner.<\/p>\n

‘N’ – \u2018N\u2019 denotes that the employee has transferred the marriage allowance to their partner.<\/p>\n

‘NT’ – \u2018NT\u2019 denotes that no tax is to be deducted.<\/p>\n

‘C’ & ‘S’ – Suffixes beginning with \u2018C\u2019 are for employees who live in Wales, and \u2018S\u2019 for those who live in Scotland.<\/p>\n

How does HMRC work out what tax is payable?<\/strong><\/p>\n

Generally, tax is calculated on a cumulative basis throughout the year.<\/p>\n

For each pay period, the entire earnings and allowances for the year to date are used to calculate the total tax due. Then the tax that\u2019s been deducted up to the previous pay period is subtracted to work out the amount to deduct in the current period.<\/p>\n

A few other suffixes to be aware of:<\/p>\n