A tax code is made up of letters and numbers, and the meanings of these affect how much tax is taken out of one’s income. The tax code 1250L is the most common tax code, at the time of writing. It conveys that the taxpayer can earn the full £12,500 Personal Allowance before being taxed. The Gov.uk website explains that this is used for most people who have one job and no untaxed income, unpaid tax or taxable benefits.
It then explains that an example of a taxable benefit is a company car.
This means that a person who has a company car may have a different tax code in the tax year of 2019 to 2020.
Tax must be paid if an individual or their family uses a company car privately, and this includes for commuting.
“You pay tax on the value to you of the company car, which depends on things like how much it would cost to buy and the type of fuel it uses,” the government website says.
It’s possible to estimate the tax payable on this job benefit, by using HMRC’s company car and fuel benefit calculator.
Gov.uk explains that tax is payable on types of income including money earned from employment, some state benefits, most pensions, income from a trust, and benefits from a job – amongst others.
There are some things in which tax is not required to be paid.
This includes the first £1,000 of income from self-employment, some state benefits, premium bond or National Lottery wins, and dividends from company shares under the dividends allowance.
Some landlords can also get a certain amount of income from property they rent as tax-free.
An example of this is if one is required to buy a uniform, work clothing, and/or tools for their role.
The tax relief can be claimed on the cost of repairing or replacing small tools you need to do your job, and/or cleaning, repairing or replacing specialist clothing.
That said, it’s not possible to claim relief on the initial cost of buying small tools or clothing for this purpose.
Some people’s tax code may change if they choose to claim the Marriage Allowance, thus transferring 10 per cent of their Personal Allowance to a civil partner or spouse.
Should a person claim this allowance, they will get the tax letter N.
Those who receive the transfer would get the tax letter M.