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The anatomy of a tax code

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<html> <head> <title>The anatomy of a tax code</title> </head> <body> <h1>The anatomy of a tax code</h1> <div class="info">Author: <a href="http://www.goinglegal.com/author_1_238607.html">Exchange Street</a></div><div class="body">There are several Common tax codes to be aware of; L - Tax code ‘L' is for those eligible for the basic Personal Allowance, an example would be seen as 647L for the 2010-2011 tax year. Also can be used for emergency tax codes P - Tax code ‘P' is for persons aged 65 to 75 who are eligible for the full Personal Allowance. V - Tax code ‘V' is for persons aged 65 to 75 who are eligible for the full Personal Allowance and the full married couple's allowance, and estimated to be liable at the basic rate of tax. Y - Tax code ‘Y' is for persons aged 75 or over who are eligible for the full Personal Allowance. T - Tax code ‘T' highlights if there is any items in your tax codes that need to be reviewed, for example the income related reduction to the Personal Allowance. K - Tax code ‘K' is for persons whose total allowances are less than their total deductions. How does the K code work? The untaxed income on which tax is still due is known as ‘deductions', and when your deductions are more than your allowances you'll be given a K code to ensure you pay tax on the excess. Whereas with other tax codes the number indicates the amount of income you can have tax free, the number in a K code multiplied by ten broadly indicates how much must be added to your taxable income to take account of the excess untaxed income you receive. For example, K497 means your untaxed income was approximately £4970 greater than your taxable income, as a result approximately £4,970 must be added to your total taxable income to ensure the right amount of tax is collected. What is an Emergency tax code? In some instances your employer or pension provider will have to use an ‘emergency' or ‘special basis' code until HRMC has worked out what your tax should be. This usually happen if you start a new job and you do not have a P45 for example. While you are on emergency code you will receive a basic Personal Allowance which may or may not be right for you. However once HMRC identifies more about your previous pay and tax, your tax code will be reviewed and changed if necessary. In addition, if you have paid too much tax under this code you will receive a refund. <a href="http://www.pbs.uk.com/" title="Payroll Outsourcing - PBS UK">Payroll outsourcing</a> takes care of tax codes for you. Other tax codes to be aware of; If your tax code has two letters but no number, or has the letter ‘D' followed by a ‘0', it is normally used when 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. BR - Tax code ‘BR' is used when all your income is taxed at the basic rate which is currently 20 per cent (this tax code is most commonly used for a second job or pension). D0 - Tax code ‘D0' is used when all your income is taxed at the higher rate of tax which is currently 40 per cent (this tax code is most commonly used when for a second job or pension). NT - Tax code ‘NT' is used when no tax is to be taken from your income or pension. How to work out your tax code? There are four simple steps to identify your personal tax code; Step one; Add up your tax allowances (in many cases, personal allowance and any blind personals allowance, some cases may include certain job expenses) Step two; Income you have not paid tax on (for example: untaxed interest or part time earnings) and any taxable employment benefits are added up. Step three; the total amount of income you have not paid any tax on, is called ‘deductions', subtract your deductions away from your total amount of tax allowances. The amount that you are left with is the total of tax free income you are allowed in a tax year. Step 4; now for the creation of your tax code, divide the amount of tax free income you are left with by 10 and add the figure you are left with to the letter which fits your circumstances, as a result you are left with your tax code. Example - 217L You are entitled to the basic personal allowance, £2,170, therefore this cash amount is to be taken away from your total taxable income and you pay tax on what is left. Changes that might affect your tax code; You must keep the HRMC informed of any change in your circumstances, for example, if you get married, form a civil partnership, separate, start or receive a second income or more. In the case of a change in circumstances, the amount of untaxed income you get will either increase or reduce. Always keep a note of all coding letters for reference, as if you have to question or check if you are paying the right amount of tax, you have all the necessary information at hand. If you have the wrong tax code you could end up paying too much or too little tax, hence why is so imperative to understand tax codes. A <a href="http://www.pbs.uk.com/uk_payroll/" title="UK Payroll Bureau - PBS">UK payroll bureau</a> could help eliminate these complexities. This article was written on behalf of PBS UK Payroll Bureau, Nottingham, 0115 985 3180</div> <div class="source">Article Source: <a href="http://www.goinglegal.com/the-anatomy-of-a-tax-code-1628839.html">http://www.goinglegal.com/the-anatomy-of-a-tax-code-1628839.html</a></div> <div class="author"> <div class="authorBio"></div> </author> </body> </html>

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The anatomy of a tax code Author: Exchange Street There are several Common tax codes to be aware of; L - Tax code ‘L' is for those eligible for the basic Personal Allowance, an example would be seen as 647L for the 2010-2011 tax year. Also can be used for emergency tax codes P - Tax code ‘P' is for persons aged 65 to 75 who are eligible for the full Personal Allowance. V - Tax code ‘V' is for persons aged 65 to 75 who are eligible for the full Personal Allowance and the full married couple's allowance, and estimated to be liable at the basic rate of tax. Y - Tax code ‘Y' is for persons aged 75 or over who are eligible for the full Personal Allowance. T - Tax code ‘T' highlights if there is any items in your tax codes that need to be reviewed, for example the income related reduction to the Personal Allowance. K - Tax code ‘K' is for persons whose total allowances are less than their total deductions. How does the K code work? The untaxed income on which tax is still due is known as ‘deductions', and when your deductions are more than your allowances you'll be given a K code to ensure you pay tax on the excess. Whereas with other tax codes the number indicates the amount of income you can have tax free, the number in a K code multiplied by ten broadly indicates how much must be added to your taxable income to take account of the excess untaxed income you receive. For example, K497 means your untaxed income was approximately £4970 greater than your taxable income, as a result approximately £4,970 must be added to your total taxable income to ensure the right amount of tax is collected. What is an Emergency tax code? In some instances your employer or pension provider will have to use an ‘emergency' or ‘special basis' code until HRMC has worked out what your tax should be. This usually happen if you start a new job and you do not have a P45 for example. While you are on emergency code you will receive a basic Personal Allowance which may or may not be right for you. However once HMRC identifies more about your previous pay and tax, your tax code will be reviewed and changed if necessary. In addition, if you have paid too much tax under this code you will receive a refund. Payroll outsourcing takes care of tax codes for you. Other tax codes to be aware of; If your tax code has two letters but no number, or has the letter ‘D' followed by a ‘0', it is normally used when 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. BR - Tax code ‘BR' is used when all your income is taxed at the basic rate which is currently 20 per cent (this tax code is most commonly used for a second job or pension). D0 - Tax code ‘D0' is used when all your income is taxed at the higher rate of tax which is currently 40 per cent (this tax code is most commonly used when for a second job or pension). NT - Tax code ‘NT' is used when no tax is to be taken from your income or pension. How to work out your tax code? There are four simple steps to identify your personal tax code; Step one; Add up your tax allowances (in many cases, personal allowance and any blind personals allowance, some cases may include certain job expenses) Step two; Income you have not paid tax on (for example: untaxed interest or part time earnings) and any taxable employment benefits are added up. Step three; the total amount of income you have not paid any tax on, is called ‘deductions', subtract your deductions away from your total amount of tax allowances. The amount that you are left with is the total of tax free income you are allowed in a tax year. Step 4; now for the creation of your tax code, divide the amount of tax free income you are left with by 10 and add the figure you are left with to the letter which fits your circumstances, as a result you are left with your tax code. Example - 217L You are entitled to the basic personal allowance, £2,170, therefore this cash amount is to be taken away from your total taxable income and you pay tax on what is left. Changes that might affect your tax code; You must keep the HRMC informed of any change in your circumstances, for example, if you get married, form a civil partnership, separate, start or receive a second income or more. In the case of a change in circumstances, the amount of untaxed income you get will either increase or reduce. Always keep a note of all coding letters for reference, as if you have to question or check if you are paying the right amount of tax, you have all the necessary information at hand. If you have the wrong tax code you could end up paying too much or too little tax, hence why is so imperative to understand tax codes. A UK payroll bureau could help eliminate these complexities. This article was written on behalf of PBS UK Payroll Bureau, Nottingham, 0115 985 3180 Article Source: http://www.goinglegal.com/the-anatomy-of-a-tax-code-1628839.html About the Author:

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The anatomy of a tax code

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