2. Numbers in your tax code: what they mean

The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year.

This will be based on your Personal Allowance, which is the amount of income you can have before you pay tax.

Example 1000L is the current tax code for most people born after 5 April 1948. 1000 refers to their tax-free Personal Allowance, £10,000, divided by 10.

How the number is worked out

  1. HM Revenue and Customs (HMRC) works out your tax-free Personal Allowance.

  2. Income that you haven’t paid tax on (eg untaxed interest or part-time earnings) and the value of any benefits from your job (eg a company car) are added up.

  3. The income that you haven’t paid tax on is taken away from your allowances. What’s left is the tax-free income you’re allowed in a tax year.

  4. This amount is divided by 10 and added to the letter for your circumstances.

The process is different if you have the letter ‘K’ in your tax code.