Tax Codes - Your Payroll Questions Answered

  • Pay & Benefits
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What is the Difference Between a 0T tax code and a BR tax code?

  • BR - tax code will deduct tax at a flat rate of 20% with no tax-free allowance
  • 0T - tax code will deduct 20% tax at the basic rate, 40% at the higher rate and 45% at the additional rate with no tax-free allowance.

What does the Week 1/Month 1(Wk1/M1) indicator next to a tax code mean?

When calculating tax for a pay period you must ignore all previous payment details. Tax will be calculated on the employee’s taxable pay for the one period instead of the whole tax year.  Wk1/M1 will be used when:

  • Using  the emergency tax code
  • If the P45 indicates a Wk1/M1 code
  • If they have ticked Statement B on their P46 (which tells their employer that they have had another job or taxable state benefits during the year)
  • Week 53 if an employee is paid weekly.

What benefits can impact on your tax code?    

  • Benefit in kind which is reported on a P11D, such as car benefit, Health care, gym membership, fuel etc.
  •  Pension
  • Some state benefits

What is a K code and in what situation would you be given a K code?

K code enables HMRC to deduct additional tax from the employee’s pay. The K code allowance is added to an employee’s taxable pay, instead of receiving a tax free amount. You may have a K code if you have a company car, State benefit or outstanding tax from a previous tax year(s). When using a K code the employer must not deduct more than 50% of the employee’s salary in one pay period. If it is the case that more than 50% tax is due, then the outstanding amount will be carried forward to the next pay period.

What do the tax codes D0 and D1 represent?

D0 - means tax will be deducted at the higher rate for all pay, currently 40%. D1 - means tax will be deducted at the additional rate for all pay, currently is 45%

What tax code would you use if an employee hasn’t ticked any of the boxes on their P46 form?

0T Wk1/M1 basis.

What does a tax code with a suffix of “T” signify?

A T tax code is a temporary tax code issued by the HMRC. It is issued when the HMRC needs to review the tax situation in place for an employee, for example the income-related reduction to the Personal Allowance. Clients can reach this service by dialing 0844 892 2772, and choosing Option 3. This service is available from Monday – Friday between 9am and 6pm.

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