A tax code is assigned by the HMRC to anyone who is in a full-time or part-time job and individuals receiving a private pension. It does not apply to individuals who are unemployed, fully self-employed or only receiving a state pension. While this blog post aims to explain the D0 tax code in detail, we will also be maintaining a general discussion of taxes in the UK with a key focus on income tax bands.

What Does The D0 Tax Code Mean?

The D0 tax code means that the individual will be liable to pay income tax at a higher rate of 40 per cent for all their incomes. It is commonly used in cases where individuals have more than one job or pension. The HMRC issues this tax code to individuals if all of their tax-free allowances have been used against another source of income. 

Individuals are assigned a D0 tax code because (a) they have multiple sources of income and (b) calculations predict that their second source of income will cause their total combined gross earnings to be between £37,701 and £150,000. This is only after any tax-free allowance has been deducted.

Tax codes are a combination of letters and numbers that determine the amount of income tax due on an individual. While the letters indicate your financial position and how it relates to your personal allowance, the numbers tell your employer pr pension provider the amount of tax-free income that you are eligible for in that tax year. 

For instance, 1257L (currently the most common 2021-22 tax code in the UK) refers to the new Personal Allowance rate for 2021-22, which is £12,570 and the letter “L” indicates that the individual is entitled to this amount of tax-free income. Any taxes that are to be charged will be above additional amounts beyond this figure.

The following steps are followed by the authorities while assigning tax codes:

  • Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
  • Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
  • Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.

This link can help you with details of what each tax code means

If you don’t know your tax code, you can find it through any of the below-listed documents:

  • Payslip
  • P45 form
  • P60
  • PAYE coding notice
  • Pension advice slip
  • HMRC website

How Much Tax Do I Have To Pay In The UK?

According to a general estimate, an individual pays one-third of their income in the form of taxes in the UK. While the amount of tax one pays depends on the scale of their income, some people will pay a higher tax perhaps due to the property that they own or inheritance that they may receive.

There are different types of taxes under the UK taxation system. Direct taxes include PAYE (Pay As You Earn) and National Insurance. These account for 20 per cent of an individual’s income. On the other hand, indirect taxes include VAT, council tax as well as duties on alcohol and petrol. 

Basic taxes in the UK include the following:

  • Income Taxes 
  • Property Taxes 
  • Capital Gains 
  • UK Inheritance Taxes 
  • Value Added Tax 

These are all progressive taxes; which means that the scale of tax increases with an increase in income.

How Much Income Tax Do I Have To Pay In The UK?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return in order to pay your taxes through a self-assessment. 

Which Incomes Are Tax-Free In The UK?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, attendance allowance, child tax credit and housing benefit. 

What Are Direct Taxes?

Direct taxes are automatically deducted from your wages, income or pension before you receive them. This is termed as Pay As You Earn. Anyone earning equal to or less than £12,750 is not eligible for PAYE as the amount is considered under the law as an individual’s personal allowance. 

In addition to income tax, direct taxes include National Insurance. During the last fiscal of 2021-22, employees paid 12% on earnings exceeding £9,568 up to £50,270 a year, and 2% on earnings above this.

Salaried individuals have NIC deducted from their wages directly by their employer. While self-employed people are required to submit a self-assessment tax return.

Who Has To Pay Property Tax?

According to The complete guide to the UK tax system | Expatica the UK has the second-highest property taxes in the world at the moment and tax revenue through this model accounts for more than 12 per cent of all tax collections.

The two forms of property tax in the UK include stamp duty and council tax. Stamp Duty tax is paid when someone buys a property in the UK over a certain threshold. The tax applies to residential properties that have a market value of above £125,000, or to non-residential land and properties that are valued at more than £150,000. Here is an online calculator to help with your property tax assessment. 

Council tax is a local tax collected by the local council to provide community-based services to their residents.

What Is Capital Gains Tax?

Whenever someone sells an asset, there is a difference between the purchase price and the selling price. If you receive gain while selling, this is a capital gain and the incremental amount will be taxed. These may include the following:

  • Personal possessions that are valued at or above £6,150 (does not include vehicles)
  • Real estate property that cannot be claimed as your main home
  • Your main home if it is being rented or used for business
  • Shares (those which are not in an ISA or PEP)
  • Business assets
  • Cryptoassets (only in certain cases)

Do I Have To Pay Taxes on Benefits?

Some state benefits are taxable while others are not. Below are details of each category:

Taxable state benefits include the following:

  • Bereavement Allowance 
  • Carer’s Allowance
  • Employment and Support Allowance (contribution related)
  • Jobseeker’s Allowance
  • Widowed Parent’s Allowance
  • Incapacity Benefit
  • Pensions paid by the Industrial Death Benefit scheme
  • State Pension

Non-taxable state benefits are listed below:

  • Attendance Allowance
  • Disability Living Allowance 
  • Guardian’s Allowance
  • Employment and Support Allowance (income-related)
  • Maternity Allowance
  • Severe Disablement Allowance
  • Bereavement support payment
  • Child Benefit 
  • Housing Benefit
  • Industrial Injuries Benefit
  • Child Tax Credit
  • Pension Credit
  • Universal Credit
  • Working Tax Credit
  • Free TV licence for over-75s
  • Income Support
  • Lump-sum bereavement payments
  • Personal Independence Payment 
  • War Widow’s Pension
  • Winter Fuel Payments and Christmas Bonus

Who Collects Tax Revenues In The UK?

The HMRC collects and administers tax collection in the UK. HMRC administers the following central taxes while local governments collect council tax:

  • Income tax
  • Corporation tax
  • Capital gains tax
  • Inheritance tax
  • Insurance premium tax
  • Stamp, land, and petroleum revenue taxes
  • Environmental taxes
  • Climate change and aggregates levy and landfill tax
  • Value-Added Tax
  • Customs duty
  • Excise duties

Who Is Tax Exempt In The UK?

Individuals may apply for tax exemption if they face  the following conditions:

  • If someone is a tax resident for at least one year out of the previous three years 
  • They have spent less than 16 days in the UK during the previous tax year
  • They are not a UK resident

The same applies in case:

  • Someone is not a tax resident for the previous three years
  • They have spent less than 46 days in the UK

Conclusion: 

The scale of income tax that a UK citizen pays to HMRC depends on two factors (a) the amount by which their income is in excess of their Personal Allowance (for 2021-2022 this amount is set at £12,750) and (b) how much of an individual’s income can be categorised according to income tax bands. This is where tax codes such as the D0 tax code are applied by authorities to determine the income tax amounts due on individuals. However certain incomes remain tax-free. 

FAQs: What Does The D0 Tax Code Mean?

Why have I been given a D0 tax code?

The D0 tax code means that the individual will be liable to pay income tax at a higher rate of 40 per cent for all their incomes. It is commonly used in cases where individuals have more than one job or pension. The HMRC issues this tax code to individuals if all of their tax-free allowances have been used against another source of income.

What is tax code D0 W1?

This is an emergency tax code that is usually applied in cases where your employment/income details are yet to be updated at the HMRC. If you are on the W1 code it means that you will be receiving the personal allowance for the week (or month) that you remain employed at your current job. However, you will not be able to claim a backlog of the allowance.

What is tax code D0 M1?

The D0 m1 tax code indicates that when someone’s pay is calculated, any amount that they would have received previously or any taxes that were paid earlier will not be taken into consideration. 

How do I fix my tax code 0T?

An OT code will not give you a tax-free salary and if you think you’ve been assigned this code in error, you should contact the HMRC for correction of error. 

Do you get emergency tax back?

If your tax code changes during the course of a tax year and you are found to have overpaid your taxes, the excess amount will be returned to you.

References:

What your tax code means – GOV.UK

Tax codes – GOV.UK

Tax Code D0 – Tax Rebate Services

Free Tax Code Calculator

Income tax calculator 2022-23, 2021-22 and 2020-21

UK Tax Calculators

HM Revenue & Customs – GOV.UK

Income Tax – GOV.UK

Income Tax rates and Personal Allowances – GOV.UK

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