What is a Tax Code?
A tax code is issued by HMRC and used by Springboard to calculate the amount of tax to deduct from the pay of umbrella company employees. If you have the wrong tax code you could end up paying too much or too little tax. A tax code is usually made up of several numbers and a letter, for example: 117L or K497 and the numbers (when multiplied by 10) explain how much earnings you can have before you pay tax. For the tax year 2012/13 the standard single person allowance is 8105, which converts to 810.
There are a number of letters that can be added to the end of a tax code however the most common one is L which represents the basic personal allowance.
The standard tax code for 2012/13 for those with a basic personal allowance is 810L.
Other Tax Codes
If your tax code has two letters but no number, or is the letter 'D' followed by a zero, it is normally used where you have two or more sources of income and all of your allowances have been applied to the tax code and income from your main job or pension.
Other tax codes and what they mean:
Code Reason for use:
BR Is used when all your income is taxed at the basic rate - currently 20 per cent
D0 Is used when all your income is taxed at the higher rate of tax - currently 40 per cent
NT Is used when no tax is to be taken from your income or pension
What is an Emergency Tax Code?
An emergency tax code is a code that Springboard uses until we have been advised by HMRC to correct your code.
The emergency tax code is set each year and is a number followed by the letter L. The number is the basic Personal Allowance (£8,105 for the tax 2012-13) divided by 10. The emergency code for 2012-13 is therefore 810L. You should note this is the same as the standard personal allowance as shown above.
Until we are advised of a different code to use Springboard will allocate each employee joining (without a P45) a standard personal allowance code on a week 1 basis.
What is a Week 1 Tax Basis?
Week 1 or month 1 emergency codes treat each week or month on its own and give you an equal amount of tax-free pay every payday. As they can't take into account changes in your income or tax which may have happened earlier in the year your tax may not be exactly right at the end of the year. As Springboard will submit an electronic P46 when you join the company it should not take long for HMRC to notify us of any changes to your tax code.