Payroll help is a site covering payroll and HR news and advice. It is maintained by the payroll and HR experts at The Learn Centre who provide
Payroll Training - HR Training and Managing People Training to professionals. We cater for all levels of experience so whether you are new to human resources and payroll or a payroll professional we will be able to answer many of your payroll & HR related questions.

This site is not a government site and has nothing to do with HMRC besides keeping you informed about updates & changes..

Tax Facts from Learn Payroll

Articles – Archive

What Does the Letter at the Front of my Tax Code Mean?

Some tax codes start with a letter and are referred to as ‘prefix codes’. This letter is used to indicate the level of tax allowances that an employee or pensioner is entitled to. There are four common prefixes in current use:

Letter	Reason
B	This is always followed by an R giving the tax code BR. When an employee is allocated this code, usually by HMRC, this is an instruction to the employer that tax should be deducted at the Basic Rate on all earnings. The employer may allocate this code if the employee is a new starter and ticks statement C on the P46 that he / she also has another employment or pension
D	This prefix is either followed by a 0 (zero) or a 1. It is often an indication that an employee receives their personal allowances in another employment. The D refers to the fact that tax is deducted at one of the rates in HMRC’s Tax Table D: Code D0 is the instruction that all earnings are to be taxed at the first of the rates in Table D. This is 40%. The ‘Higher Rate’ code will take tax at 40% on all earnings Code D1 is the instruction that all earnings are to be taxed at the second of the rates in Table B. This is 50%. The ‘Additional Rate’ code will take tax at 50% on all earnings
K	The simple explanation of a K code is that HMRC have allocated personal allowances to the employee, however, the adjustments they have made have resulted in negative allowances. For example, an employee is entitled to the standard personal allowance but had a company car in the previous tax year with a taxable benefit in the sum of £8,000. The tax code is calculated by HMRC as follows: Add Personal Allowances £7,475.00 Less taxable benefits £8,000.00 equals Resultant allowances -£525.00 See our FAQ ‘What does my tax code mean?’
N	This prefix is either followed by a T or an I. In fact, it is both a prefix and a suffix code: NT is an abbreviation of ‘No Tax’ or ‘Nil Tax’. Only HMRC are permitted to issue this code and it is applied in exceptional circumstances to employees who are not required to pay tax on their earnings. The most common example would be for international (expatriate) employees where HMRC decide that no UK tax is payable earnings paid in the UK NI is an abbreviation for ‘NI only’ for students who are working in their vacation periods. Students who sign the P38(S) should be placed on tax indicator NI by the employer, rather than tax code NT, which should only be issued by HMRC. (See ‘When and how is the P38(S) procedure used for student employees?’)

Payroll Update 2013