Tax Code Question

T.C.

Can someone please tell me why a self-employed person, who has also taken on a part-time employment has the tax code OT M1? I don't do much payroll these days and your knowledge is appreciated.

SarahJS

The 0 means no tax free income from the job - none of his personal allowance is allocated to the job.
The T is just a code letter used by HMRC.
The M1 means the codeis operating on a week1/month1 basis.

T.C.

Thank you. So basically it is being taxed at BR then?

uknitty

The effect of a 0T and BR to the client is pretty much the same - they don't get any tax free pay.

There is a subtle difference in the meanings of the codes though. BR assumes that the employee has a personal allowance, but it has already all been used up in the tax period, whereas 0T means that there is no personal allowance allocated to this job.

T.C.

Thanks. I am understanding a little, but not sure why. It doesn't really matter though as the income will be entered on the end of year Tax Return. Many thanks both of you.

uknitty

The difference between the codes is only relevant for higher rate tax payers.

With a BR code the client will be taxed a flat 20% regardless of the income level. With the 0T code there is potential for the higher rate of tax to kick in if the client has enough income.

T.C.

Thanks. Now I understand. Much appreciated.