It is important for tax-paying citizens to have a basic understanding of their tax code and how income tax is calculated especially in the case of multiple sources of income and different tax codes being applied to each one. Through this article, we will discuss the application of a BRX tax code and the implications it bears on your Personal Allowance and secondary incomes.

What Is A BRX Tax Code?

A BRX tax code is an emergency tax code that indicates that all your incomes must be taxed at the basic rate of 20 per cent without taking into consideration your tax-free Personal Allowance. 

It is usually applied when the HMRC and your employer do not have complete details regarding your employment and/or income details and the BRX tax code is assigned to you while the documentation is complete and a permanent tax code can be assigned to you.

In addition to this, you can be assigned a BRX tax code if:

  • an individual has not provided their employer with a complete P45 form or a P47
  • someone is being transferred from being self-employed to a PAYE employee
  • you are receiving an additional income through a second job or a pension

If you think you’ve been assigned a BRX tax code by mistake you should provide the required documents and details to your employer or HMRC so that a correct tax code can be assigned to you. If you fail to do so, you may end up overpaying your taxes.

On the other hand, it is likely that you are a high taxpayer you should be assigned a D0 tax code and you are underpaying your taxes with a BRX tax code. If you do not correct this error, you may have to pay the due amount of taxes in lump sum amount once the error is realised by your employer or HMRC and a correct tax code is assigned.

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

Income tax bands in the UK are classified as follows:

  • 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

Is There Any Other Basic Rate Tax Code?

Yes, there is another basic rate tax code. If your tax code is 0T1, it means that you have no tax free personal allowance and a basic rate of income tax will be applied to the total amount of your income.

There are many reasons why an 0T1 tax code is assigned to individuals. One of the reasons may be that you have no tax free allowance remaining which may be exempted from income tax. Another reason could be that you’ve recently started a new job. Due to this, you have not been able to give your employer your old P45 and you haven’t submitted your P46 as yet. 

This means that taxpayers living in England will be charged as follows:

  • 20% tax on income up to £37,500
  • 40% tax on income between £37,501 and £150,000 
  • 45% tax on income above £150,000

What Is The D0 Tax Code?

The D0 tax code indicates 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.

What Is Personal Allowance?

When you are working in the UK, there is a certain amount of your income that remains tax-free as it is considered to be a Personal Allowance. The amount set for Personal Allowance during the 2021-2022 tax period is £12,750. 

Your personal allowance is applicable to your combined incomes from different sources. However, for the purpose of tax deduction, your main or primary job, which is also the source of a higher income is considered for Personal Allowance deduction prior to a tax rate is applied.

Since you get Personal Allowance once (it does not apply to each individual source of income), it may be in your own interest to have it applied to your main job and not the second one. However, if someone works two jobs and their cumulative income is less than the Personal Allowance amount of £12,750, they can have it spilt across both incomes. Sometimes a second job may increase your tax bracket which leads to a higher tax deduction on your income with an insignificant impact on your take-home salary.

Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance since it has already been accounted for. The reason is that the HMRC divides your total income by sources to calculate the amount of tax that is due on your cumulative income.

Do I Have To Pay Tax On Income From A Second Job?

Yes, if you have a second job, your income from this source of earnings will also be taxed. However, the tax that you pay on a second job will depend on a number of factors. 

Generally speaking, your second job is usually assigned a BR (Basic Rate) tax code which indicates that there is a 20 per cent tax due on your income.  

To avoid being overtaxed or undertaxed (with tax arrears due at the end of the term) due to a second job, it is advisable to follow the below instructions: 

  • When you start a second job you must make sure that you get a Starter For or P46 from your new employer. This form is used to update your employment details at the HMRC.
  • Confirm the tax codes assigned to both of your jobs. Your main job is usually assigned a 125L tax code for 2021-2022; while your second job will be assigned a BR, D0 or D1 tax code.

If your second job involves you in a self-employed position, you will have to pay your own tax and National Insurance contributions by filing a self-assessment tax return on the 31st of January every year. 

Do I Have To Pay Tax On My Bonus?

Yes, your bonus is considered taxable income in the same manner as your regular income and you can calculate the amount of tax that you pay on your salary bonus in the same way that the tax on your monthly income is calculated. 

This means that if you earn £30,000 a year and are classified as a basic rate taxpayer, you will be paying 20% tax and 12% national insurance on incomes in excess of £12,570. If you get a bonus of £3,000, you will still be paying 20% tax and 12% national insurance on this as well.

Sometimes the bonus that you earn may raise the level of your tax bracket which means that incomes (salary plus bonus) below a certain threshold will be taxed at a separate rate, while those in excess of the minimum limit will be taxed at a higher rate.

For instance, you earn $45,000 a year and are considered as a basic rate taxpayer, paying 20% tax and 12% national insurance on incomes in excess of £12,570. However, you receive a bonus of £10,000 making your annual income £55,000; taking your annual earnings to a higher tax bracket. This means that high incomes and larger bonuses increase your tax deductions.

If you receive a non-cash bonus such as a company car, a private health scheme or recreational activities and rewards through your employer, these will be considered a benefit-in-kind and will be taxed at their monetary value at a flat rate of 13.8%. 

How Are Tax Codes Assigned?

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 or pension provider the amount of tax-free income that you are eligible for in that tax year. 

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.

Conclusion:

A BRX tax code is a temporary tax code that takes into account all of your incomes and applies a flat rate of 20 per cent for income tax deductions without deducting your tax-free Personal Allowance. Although any overpaid taxes can be claimed from the HMRC, it is advisable to maintain updated records with your employer and the HMRC to make sure that you are being assigned the correct tax code for appropriate deductions.

FAQs: What Is A BRX Tax Code?

Why am I on a cumulative tax code?

Most taxpayers in the UK are on a cumulative tax code. This is an indicator that your tax deduction is based on your annual income after taking your Personal Allowance into consideration.

What does BR W1 M1 mean?

A BR tax code is an emergency tax code that indicates that all your incomes must be taxed at the basic rate of 20 per cent without taking into consideration your tax-free Personal Allowance. The addition of a W1 extension indicates that the week in question must be referred to for your tax deduction while an M1 extension indicates a monthly deduction. W1 is applicable to weekly earnings while M1 applies to a monthly salary.

Do you get emergency tax back?

Yes, you can get emergency tax back if you have overpaid your taxes. For this, you need to apply for a tax rebate claim with the HMRC and provide relevant details to pursue a refund on the excess payment.

How does a cumulative tax code work?

A cumulative tax code takes into account all the tax that you have paid to date on the taxable amount of your earnings. If you have underpaid your taxes at any time, you will be asked to clear those dues and if there has been an overpayment on your behalf, the amount will either be refunded or adjusted in future tax payments.

How do I fix my BR tax code?

If you believe that you have been assigned the BR tax code in error, you must inform the HMRC and your employer at the earliest. They might require certain details and documents from you to update your records so that your tax code can be corrected.

References:

What Is A BR Tax Code? | BR Emergency Code.

Tax Code BR – Patterson Hall Chartered Accountants

BR, BR-W1 and BR-M1 – Key Portfolio

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

How much tax do you pay on a second job? – The PAYE People

Second job tax – how much will I have to pay? | reed.co.uk

0T, 0T-W1 and 0T-M1 – Key Portfolio

How are bonuses taxed in the UK? | Cash and non-cash bonuses

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.