Decoding your tax code

We’re over a month into the new tax year and for some, the subject of tax can be confusing. Put simply, Income Tax is a tax you pay on your earnings – but, you don’t have to pay tax on all types of income.

You do need to pay Income Tax on things like:

• money you earn from working
• profits you make if you’re self-employed
• some State Benefits (e.g. Jobseekers Allowance, Carer’s Allowance)
• most pensions (e.g. State Pension, employer and personal pensions)
• rental income (i.e. if you own a house and rent it out)

As of 6 April 2020, the Personal Allowance didn’t change and remained at £12,500.

On the plus side, you don’t have to pay Income Tax on things like:

• premium bond wins or National Lottery
• interest on savings within your savings allowance
• some State Benefits (e.g. housing benefit, child tax credit)
• Individual Savings Accounts (ISAs) and National Savings Certificates

Most people in the UK have a ‘Personal Allowance’, which entitles them to a certain amount of tax-free income. This allowance is then translated into a tax code, but did you know that your personal tax code changes each year?

You can check your Income Tax online to see what your tax code is, how it is worked out and how much you’re likely to pay. Your tax code will usually start with a number and end with a letter. For example, L is the current tax code used for most people who have one job or a pension.

Each tax year starts on 6 April and ends on the 5 April the following year. Anyone who’s required to file a tax return will receive a notice letting them know they need to do this for the year that has ended.

For further information on money and tax in general, visit www.gov.uk/browse/tax. There’s lots of useful information on other topics such as how to deal with HM Revenue and Customs, Inheritance Tax and National Insurance.