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What Are Tax Code Allowances?

Last reviewed: March 2024

Most people who pay tax in the UK are entitled to an HMRC Personal Tax Allowance (or simply ‘Personal Allowance’). This is the amount of money you can earn in a tax year before you have to pay any Income Tax on it.

The Personal Allowance you qualify for is listed in your tax code, which is one of the reasons why it’s so important to check that your code’s correct. If your tax code lists the wrong Personal Allowance for you, you’re probably paying the wrong amount of tax.

Tax Code AllowancesHow does your tax code allowance change the amount of tax you pay?

Tax code allowances determine how much ‘tax-free pay’ you can have each month, reducing the amount of employment income you pay tax on. This means you pay less tax over the year and get relief ‘through your code’. For instance, if you’ve got work expenses that don’t change from year to year, HMRC might alter your tax code to account for the tax relief you qualify for.

Knowing if you’re on the correct tax code can be complicated, and if your code doesn’t match your circumstances you could end up paying more tax than you owe. RIFT can help ensure you’re paying the correct tax with our tax rebate and Self Assessment services.

See our HMRC Tax Codes Explained page for an overview of the various tax codes and what yours means – and feel free to get in touch with us at any time if you have questions.

While you’re at it, why not answer a few quick questions from us to see if you’re due a tax rebate?

This table shows the basic allowance thresholds for the 2023/24 Tax Year:

Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	over £125,140	45%

Tax code allowancesWhat can change your personal allowance?

Certain situations can change the Personal Allowance you qualify for, often meaning you can earn more before you start paying tax. For example, being entitled to the Blind Person’s Allowance or claiming tax relief for pension contributions, charitable donations or job expenses can raise your Personal Allowance.

Of course, there are also times when your Personal Allowance can be reduced instead. For example, people earning more than £100,000 per year have their Personal Allowances reduced by £1 for every £2 they earn over that amount. By the time you’re earning over £125,140, your Personal Allowance has hit zero and you’re paying tax from the very first penny you make.

Is my tax code right?On the wrong tax code? You're probably paying the wrong tax

You tax code’s supposed to reflect your basic working circumstances. However, your employer and HMRC make a few assumptions when setting your code. Their main assumption is that those circumstances won’t change over time. If your life or work get shaken up during a tax year, this can mean your code ends up wrong. In turn, this can lead to you paying the wrong amount of tax. In addition, there may be times when your code is simply applied wrongly. Examples of things that can cause this include:

Leaving the UK part-way through a tax year.
Stopping work during the tax year.
Being on a temporary or emergency tax code.
Having more than one job. Your Personal Allowance only applies to your ‘main’ job. If HMRC applies it to a job that earns you less than the Personal Allowance threshold, you might not get the full benefit of it.

In any of these situations, you may end up paying more tax than you owe. If HMRC knows there’s a problem, they might fix it automatically by sending you a P800 tax calculation form. If they don’t have enough information to do this, you’ll need to claim a tax refund to square things up instead. As always, talk to RIFT if you think there’s a problem with your tax code.

Tax code allowancesI don’t earn enough to use my full Personal Allowance. Does that mean it’s wasted?

Not necessarily. If you’re married or in a civil partnership, you can use the Marriage Allowance system to make better use of your tax-free Personal Tax Allowances.

Here’s how it works. If one of you isn’t earning enough to use up their full Personal Allowance, they can transfer a chunk of it to their partner, effectively letting them earn a bit more before HMRC gets a taste. Right now, you can transfer £1,260 of your Personal Allowance to your spouse. In real terms, that’s worth an extra £252 per year.

In fact, you don't even need to have an income to have a Personal Allowance—so don't think you'll be left out because you aren't earning. If you use your Marriage Allowance, your partner will get a new tax code, while yours will sprout an N at the end of it. Those changes are nothing to worry about, though. You’ll find everything you need to know on our HMRC Tax Codes Explained pages.

National InsuranceNational Insurance and Personal Allowance

National Insurance Contributions (NICs) are payments made from your income that determine your entitlement to the State Pension and other benefits.

As with Income Tax, you can earn a certain amount of money before you start paying National Insurance – and that number can change over time. For example, the Class 1 Primary Threshold (PT) rates for most employees in 2023/24 started as:

What you're paid	Class 1 Primary Threshold (PT)
Under £242 per week	0%
£242-£967 per week	12%
Over £967 per week	2%

However, after the 6th January 2024, changes meant that the National Insurance thresholds became:

What you're paid	Class 1 Primary Threshold (PT)
Under £242 per week	0%
£242-£967 per week	10%
Over £967 per week	2%

As always, your tax code can have an effect on the types and amounts of payments you need to make. Check with RIFT if you're not sure where you stand.

Find out more about National Insurance.

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What Are Tax Code Allowances?​