Tax Code Question

T.C.T.C. Experienced MentorRegistered, Tutor Posts: 1,448
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.

Comments

  • SarahJSSarahJS Trusted Regular Registered Posts: 273
    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.T.C. Experienced Mentor Registered, Tutor Posts: 1,448
    Thank you. So basically it is being taxed at BR then?
  • uknittyuknitty Experienced Mentor Registered Posts: 591
    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.T.C. Experienced Mentor Registered, Tutor Posts: 1,448
    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.
  • uknittyuknitty Experienced Mentor Registered Posts: 591
    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.T.C. Experienced Mentor Registered, Tutor Posts: 1,448
    Thanks. Now I understand. Much appreciated.
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