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Self-employed tax codes: What to know

February 11, 2022This article was updated 17th February 2023.Maybe you’ve taken up a part-time position alongside your sole trader business, or have started freelancing outside of your full-time job. Whatever the reason, you might find yourself wondering if you’re paying the right amount of tax on all of your earnings.There is one simple way to find out — all the information you need to know is contained in your tax code.

What is a tax code?

Your income changesYou get a new jobYou start working for an employer after being self-employedYou start getting company benefits or the State Pension

If HMRC update your code and find that you’ve paid either too much or not enough tax, you’ll be sent a P800 or a Simple Assessment tax calculation that will enable you to either get a refund or pay with you owe.

What does my tax code mean?

Tax codes are recognisable as a number followed by a letter, with perhaps the most recognisable tax code being 1275L. Taking this tax code as an example, here’s what each component of your tax code means:

The number indicates the total amount you can earn tax-free in the tax year which, in this case, is £12,570The letter refers to your situation and how it affects your tax-free Personal Allowance

To get an idea of how varied tax codes can be, we’ve broken down the different tax code letters and what they mean in the table below:

Letters	What they mean
L	You're entitled to the standard tax-free Personal Allowance
M	Marriage Allowance: You've received a transfer of 10% of your partner's Personal Allowance
N	Marriage Allowance: You've transferred 10% of your Personal Allowance to your partner
T	Your tax code includes other calculations to work out your Personal Allowance
0T	Your Personal Allowance has been used up, or you've started a new job and your employer does not have the details they need to give you your tax code
BR	All your income from this job or pension is taxed at the basic rate (usually used if you've got more than one job or pension)
D0	All your income from this job or pension is taxed at the higher rate (usually used if you've got more than one job or pension)
D1	All your income from this job or pension is taxed at the additional rate (usually used if you've got more than one job or pension)
NT	You're not paying any tax on this income
S	Your income or pension is taxed using the rates in Scotland. The tax codes listed above can follow this letter to indicate the Scottish tax bands
C	Your income or pension is taxed using the rates in Wales. The tax codes listed above can follow this letter to indicate the Welsh tax bands

Source: gov.ukIf your tax code has a 'K' at the beginning, it means that you have income that is not being taxed another way that is worth more than your Personal Allowance. This is typically the case if:

You're paying tax you owe from a previous year through your wages or pensionYou're getting either company benefits or state benefits that you need to pay tax on

If you're in employment, your employer will take the tax due on the income that has not been taxed from your wages or pension, even if it's another organisation that's paying you the untaxed income.

Emergency tax codes

If your tax code ends in W1, M1 or X, this means that you currently have an emergency tax code. This means that you pay tax on all income above the basic Personal Allowance.You’ll generally be put on an emergency tax code if HMRC does not get your income details in time after a change in your circumstances. However, these tax codes are only a temporary measure, and HMRC will usually update your tax code if you or your employer update them with the correct details.If your change in circumstance means that you haven’t paid the right amount of tax, the emergency code will remain until the balance has been settled.

Do I have a self-employed tax code?

Since self-employed people pay their Income Tax through their Self Assessment tax return instead of PAYE, you will not have a self-employed tax code.

However, if you are self-employed and employed on either a full-time or part-time basis, or have a pension, you’ll have tax codes for them.

Can I pay my Self Assessment through my tax code?

To pay your Self Assessment tax bill through your tax code, you must make sure that both of the following applies to you:

Your tax bill is less than £3,000 after expenses have been deductedYou are already paying tax through PAYE, either as an employee or by receiving pensionYou file an online tax return by 30th December, or a paper tax return by 31st October

However, even if you have met the above conditions, you won’t be able to pay your tax bill through your tax code if:

You do not have enough PAYE income for HMRC to collectYou’d pay more than 50% of your PAYE income in taxYou’d be paying more than twice as much tax as you usually would

Before your proceed, keep in mind that you won’t be able to pay Class 2 National Insurance contributions using this method, unless it’s been due since before 6th April 2015.