Tax codes are an indicator of the nature of a tax as well as the estimated amount or a percentage of the income that is to be deducted from their gross salary. Through this article, we will learn the meaning of the 500T tax code, as well as some other commonly used tax codes. We will also explore how tax codes are calculated and tax rates applied to incomes.

What Is Tax Code 500T?

If there is a T that appears at the end of your tax code it means that your taxed amount needs a review from the Inspector of Taxes. 

The 500T tax code equates to the standard personal allowance of £9,440 during the 2013-15 tax term. This also means that a previous tax code was reduced from the normal (1150) to 500. The reason for the is change may be explained in the tax code notification received by the claimant.

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. 

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.

You can check your income tax calculations online through the HM Revenue and Customs website. If you are employed in more than one job, you will have to conduct multiple calculations to have an estimate for income tax deductions for each source of earnings.

Why Is My Tax Code 1282L?

The 1282L tax code indicates that you have been granted a tax relief by HMRC due to the work from home nature of your employment since the onset of the pandemic. 

The reason for this tax relief is to help individuals adjust the increased expenses that they would have incurred as a result of increased heating, internet usage and electricity bills while working from home. However, this relief applies only to individuals who have been asked by their employers to work from home and have not personally chosen to do so.

Benefitting from this tax rebate, nearly four million people have claimed a tax rebate so far in the UK. If you have not applied as yet, the 1282L tax code can also be applied for backdated relief to 2021. 

If you have not been assigned a 1282L tax code but you think you may qualify for it due to your working conditions, you can confirm this by checking the eligibility criteria:

  • you were asked to work from home by your employer and did not opt to do so on your own.
  • you have incurred additional costs as compared to your usual bills due to working from home (you may need to show proof of this)
  • you are not receiving any form of additional work from home support from your employer to cover these costs
  • you are not paying taxes through self-assessment (you need to apply for the tax relief in your tax return)

What Does Tax Code 1250LX Mean?

The 1250LX tax code on your payslip means that the HMRC is directing your employer to consider your tax deduction as a non-cumulative one. This means that the tax rate applied on your income is only applicable for the period in consideration and the same rate may not be applied for the entire tax year.

The reason for being assigned this unique tax code may be due to the reason that the individual is changing jobs and has been assigned a new tax code in the middle of the tax term. It may also be applicable in cases where self-employed individuals return to salaried jobs and experience a change to their tax code. Or it may be due to the fact that someone is returning to the workplace after a career sabbatical.

The 1250LX tax code is an emergency tax code. This means that it is temporary and can be changed with a change in an individual’s circumstances. Other emergency tax codes include those ending with an M or a W.

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.

How Are Tax Codes Calculated?

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.

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 Income Tax Do I Have To Pay?

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 to pay your taxes through a self-assessment. 

How Can I Calculate Bonus Tax?

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. Therefore, salaried individuals pay income tax and national insurance on a bonus as they would on a regular income. The reason for this is that when employees receive a bonus in the UK, it is treated in the same way as their income when it comes to tax calculations. 

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.

Which Incomes Are Tax-Free?

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. 

Conclusion:

The 500T tax code was applicable during the tax 2013-15 tax term when the personal allowance was £ 9,440. Each tax code has a separate indication towards one’s tax deduction. For instance, the 1282L tax code indicates that you have been granted a tax relief by HMRC due to the work from home nature of your employment since the onset of the pandemic. Currently, the most common tax code in the UK is 1257L 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.

FAQs: Why Is My Tax Code 500T?

What does it mean if my tax code ends in T?

If your tax code ends in T, it means that your tax code includes other calculations to estimate your Personal Allowance and will need a review from the Inspector of Taxes.

What does the 500L tax code mean?

A 500L tax code means that you can only earn £5,000 annually, before having to pay taxes. Each tax code has a unique explanation. If you think your tax code is incorrect, you should inform HMRC.

How do I change my tax code to T?

If your tax code ends in T, it means that there are items in your tax code that need to be reviewed by the Inspector of Taxes. You cannot get your tax code changed on your own. If you think that your tax code is incorrect, you should inform HMRC so that they may correct it.

Why is my tax code so low?

Your tax code may be low to account for previously untaxed income, including rents or savings income, underpaid tax or certain company benefits that were unaccounted for. Due to this, there will be an increased amount of tax deduction from your current income.

What is tax code S1257L?

Currently, the most common tax code in the UK is 1257L. This code 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.

References:

Tax code 500T — MoneySavingExpert Forum

500T-1 Tax Code – Page 1 – Finance – PistonHeads UK

Working from home? Customers may be eligible to claim tax relief from 2021 to 2022 – GOV.UK

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

What your tax code means – GOV.UK

Tax codes – GOV.UK

Tax Code D0 – Tax Rebate Services

Understanding your tax code for 2019/20 – Liquid Friday.

1250lx — MoneySavingExpert Forum

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.