Understanding Your Tax Code

Tax Code 1060L

The most common tax code for tax year 2015 to 2016 is 1060L. It is used for most people born after 5 April 1938 with one job and no untaxed income, unpaid tax or taxable benefits (e.g. company car).

1060L is an emergency tax code only if followed by ‘W1’, ‘M1’ or ‘X’. Emergency codes can be used if a new employee doesn’t have a P45.

What the numbers mean

The numbers in an employee’s tax code show how much tax-free income they get in that tax year. You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed. For example, an employee with the tax code 1060L can earn £10,600 before being taxed. If they earn £27,000 per year, their taxable income is £16,400. The process is different if the employee has the letter ‘K’ in their tax code.

What the letters mean

Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance.

CodeHow tax is deductedWhen this code is usually used
0TFrom all income - there is no Personal AllowanceWhen an employee hasn't given you a P45 or enough details to work our their tax code, or when their Personal Allowance has been used up.
BRFrom all income at the basic rate.For a second job or pension.
D0From all income at the higher rate.For a second job or pension.
D1From all income at the additional rate.For a second job or pension.
LAt basic, higher and additional rates depending on the amount of taxable income.For an employee born after 5th April 1938 who is entitled to the standard tax-free Personal Allowance.
MAt basic, higher and additional rates depending on the amount of taxable income.For an employee whose spouse or civil partner has transferred some of their Personal Allowance.
NAt basic, higher and additional rates depending on the amount of taxable income.For an employee who has transferred some of their Personal Allowance to their spouse or civil partner.
NTNo tax is deducted.Very specific cases, eg musicians who are regarded as self-employed and not subject to PAYE.
TAt basic, higher and additional rates depending on t he amount of taxable income.When HM Revenue and Customs (HMRC) needs to review some items with the employee.
YAt basic, higher and additional rates depending on the amount of taxable income.For an employee born before 6th April 1938 who is entitled to a bigger Personal Allowance.

Tax code with W1 or M1 at the end

W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, e.g. ‘577L W1’ or ‘577L M1’. Calculate your employee’s tax only on what they are paid in the current pay period, not the whole year.

Tax codes with the letter K

The letter K is used in an employee’s tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their Personal Allowance.

Multiply the number in their tax code by 10 to show how much should be added to their taxable income before deductions are calculated.

Example: An employee with tax code K475 and a salary of £27,000 has taxable income of £31,750 (£27,000 plus £4,750).

The tax deduction for each pay period can’t be more than half an employee’s pre-tax pay or pension.

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martin.creighan@amlink.uk

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