Life Death & Taxes; it’s a common analogy for something which is unavoidable, but in our continuing effort to inform and educate, we are here to help with some advice to better understand one part of this important trio. The best place to start is dealing with your Personal Allowance.

Sadly, barring healthy diet and exercise, we can’t offer much more than that on extending someone’s  life, but tax is certainly our field of expertise.


Personal Allowance (PA)

Now, the first element of understanding your tax is first knowing how’s its calculated.

The starting point is always what you are entitled to tax FREE, yes, free. Each individual is entitled to what is known as a personal allowance and in this tax year (19-20) it’s £12,500!

This means that no tax will be paid on the first £12,500 of taxable income earned during the tax year.

Note: This does begin to reduce if earnings are over £100,000. For every £2 earned over this, the PA is reduced by £1.

For example an individual earning £105,000 will have their personal allowance reduced by £2,500, entitling them to £10,000 of tax free income.

A married couple are able to transfer a portion of their personal allowance to their partner. This can further extend their personal allowance and more about this can be read here


Tax Codes

Each year everybody receives a letter from Her Majesty’s Revenue & Customs with what their tax code is for that year. This tax code explains how much personal allowance you have and how it is going to be used.

A tax code is a combination of numbers and letters which is used by employers and pension providers to correctly tax your income before you receive it.

This is done so the majority of people will not need to file a tax return. As tax has already been collected on their behalf; so your personal allowance may be split between different sources of income.

Think about it, if your pension provider and your employer both used all of your personal allowance, then you will have unknowingly underpaid tax and would have been in for a shock bill. In the reverse, if neither took them into account, then you will have overpaid tax and it can take time to get this refunded.

The numbers in a tax code can be multiplied by 10 to tell you how much your personal allowance is to be used, the standard number is 1250 to indicate the £12,500.

We have outlined a selection of letters below to help explain; further details can be found at

L – This is to indicate a standard tax code

K – You actually owe tax from either a previous tax year or you receive other benefits. These benefits will be valued higher than the standard personal allowance.

BR – All income tied to this tax code will be taxed at the basic rate of 20%. Usually because all of your personal allowance is being used elsewhere.


So here is a little example to show you how it all works:

Denise has a full time job at a local recycling centre earning £15,000 a year as well as receiving income from a private pension totalling £4,500 a year.

Her tax code notice has just dropped through the letter box, her personal allowance has been confirmed as £12,500.

Her tax codes issued are as follows:

Private Pension    450L

Full Time Job       800L

Therefore none of her pension will be taxed at source at it is all covered by her PA.

Any earnings over £8000 in her job will be subject to basic rate tax.

Throughout the year her employer will stop tax of £1,400 (£7,000 x 20%) on her behalf to meet her tax liabilities.


We hope that you have found this useful.


If you require any further insight or would like to discuss your tax code please do not hesitate to get in touch at

As always this blog is for information purposes only. We always suggest seeking professional advice when dealing with Tax affairs. D H Tuck & Co Limited can not be held responsible for how information declared within this blog is utilised.