Tax Codes
HMRC are responsible for issuing tax codes and determine the Inland Revenue tax code by giving everyone the personal allowance, deducting any earnings where tax remains unpaid from the previous year and dividing the result by 10. Variations to this calculation are when other factors affect the tax code.
An emergency tax code is issued to calculate tax when the new tax code is not immediately available. That can occur when the employee does not have a P45 or completes a P46. The emergency tax code 543L is replaced with the new tax code 603L from 7 September 2008 which is the basic tax allowance but is also applied on a week one or month one basis. A week one or month one basis means the employer will calculate tax to be deducted for each pay period and not on a cumulative basis which in effect prevents tax refunds until a confirmed tax code is received to replace the emergency tax code..
Letter L means eligible for the basic personal allowance and is also used for the emergency tax codes. Letter P is for people aged 65 to 74 and letter V for people aged 75 and over, while letter Y is also for people over 75 but who are eligible for the full personal allowance. A tax code with a suffix letter T indicates there may be issues that HMRC still need to review regarding the tax code and letter K indicates that the value of taxable benefits exceeds the personal allowance.