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. Through this blog post, we aim to learn in detail about the application of the 0T1 tax code; as well as understand how different tax codes are calculated in applied across the UK.

Why Is My Tax Code 0T1?

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

The most common tax code in the UK during 2021-22 is 1275L which 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.

Claimants are able to receive up to a £125 reduction in their tax bill when they are assigned a 1282L tax code. This estimate is based on the following calculations:

  • Tax relief of 20% on £6 = £1.20 a week = £62 per year for basic-rate taxpayers 
  • Tax relief of 40% on £6 = £2.40 a week = £125 per year for higher-rate taxpayers

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:

Having a tax code of 0T1 is an indicator that the taxpayer has used their personal allowances earlier on and is therefore not eligible for more allowances as long as the 0T1 tax code is applicable on their income. This also means that the said taxpayer will have the entire amount of their incomes taxed. There are also other situations, such as 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. Or, for instance, 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 as they have more than one job or pension.

FAQs: Why Is My Tax Code 0T1?

Why has my tax code been reduced?

The reason why your tax code is reduced may be that you have used all of your personal allowances in previous years or you owe tax for earlier years. Instead of having to repay a lump sum amount, you can now pay back your tax due in smaller amounts due to a reduced tax code. If your income can be taxed only after being received, the deduction will be on the basis of an estimate.

What will be the tax code for 2020 to 2021?

The most common tax code in the UK during 2021-22 is 1275L which 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.

Why has my tax code changed by HMRC?

Your tax codes ic changed by HMRC as soon as the authorities receive information of a change in your circumstances that are related to taxes. This may include getting a new job, retirement, getting a pension, changes in income or getting benefits.

Why has the PAYE tax code changed?

Your PAYE tax code can change due to a number of reasons. This may include getting a new job, starting a second job with additional income, retirement, getting a pension, changes in income or getting benefits.

Do you pay more tax if your tax code goes down?

Yes, you pay more taxes if your tax code is down. The numbers in your tax code are related to your personal allowance which indicates the amount you earn before paying taxes.

References:

What Is an OT Tax Code? | Tax Rebate Services.

0T, 0T-W1 and 0T-M1 – Key Portfolio

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

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