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Importance of Tax Code

Posted on Apr 12, 2008 under TAX |

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Every person who pay’s tax has a tax code. Every person who is paid under the scheme of PAYE (Pay-as-You-Earn) is issued a tax code by the HMRC (HM Revenue and Customs). The tax code depends on the information that is provided by the tax payer to the HMRC. The tax code is a type of number that is followed by letter or a letter followed by the number. The tax code also determines the income of a person which is tax free before deduction. The tax code is also reviewed and adjusted if there is any change in the income.

There are some methods that are used for interpreting the tax code. For instance, if in the tax code the letter is followed by the numbers than if we multiply the numbers that are mentioned in the tax code by 10, it will give the amount that a person is permitted to earn before the tax is paid. Every individual letter will determine a different meaning. Most likely the letter which appears in the code is ‘L’, which means that that person is entitled to a basic personal allowance. There are some other letters that may be seen with the tax code like:

- ‘P’: This letter ‘P’ are used for those who are from 65 to 74 year of age. It means that the person is entitled to a full personal allowance.

- ‘V’: This letter ‘V’ are used for those who are from 65 to 74 year of age. It means that the person is entitled to a full personal allowance and also for the married couple allowance.

- ‘Y’: Letter ‘Y’ appears for people who are over 75 yrs of age, they get full personal allowance.

- ‘T’: Letter ‘T’ appears for those from which HMRC requires some more information about their income, to decide that how much tax must be paid by the person.

The tax code is a very important thing and the person may see them on different document like his pay slip, and some other forms that he received or ha to fill. So it is always advised that the person should use the tax code very carefully.