What tax code will I be put on when I use an umbrella company?

As a contractor, you may wonder what tax code you will be put on when you register with an umbrella company. We’ve created a brief overview of tax codes, what they mean, and what tax code you’ll be assigned when you use an umbrella company.

What is a tax code?

A tax code is a combination of numbers and letters used by your employer or pension provider to calculate how much Income Tax to deduct from your pay or pension. The umbrella company does not choose or determine which tax code to use—this is set by HMRC, and HMRC will tell them which tax code to use.

What tax code will I be put on when I use an umbrella company?

When you register with an umbrella company, they will ask you to provide a copy of your most recent P45 or to complete a Starter Checklist for PAYE. If you give a copy of your P45, your umbrella company will use your P45 to work out your tax code and update your details in your payroll software. If you do not have a P45, you can complete the Starter Checklist for PAYE and select the statement that applies to you. Your umbrella company will then allocate a tax code to you based on the chosen statement – HMRC, not the umbrella company, sets these tax codes.

Understanding your tax code

What do the numbers in your tax code mean?

The numbers in your tax code indicate to your employer or pension provider how much tax-free income you are entitled to in that tax year. The standard Personal Allowance is £12,570 for the 2024/25 tax year, which is the amount of income you do not have to pay tax on. You do not get a Personal Allowance on taxable income over £125,140. How much income tax you pay in each tax year depends on how much of your income falls above your Personal Allowance and how much of your income falls within each income tax band.

What do the letters mean in your tax code?

The letters in your tax code refer to your personal situation and how it affects your Personal Allowance.

Letters in a tax code	What the letters mean
L	You’re entitled to the standard tax-free Personal Allowance
M	You’ve received a transfer of 10% of your partner’s Personal Allowance via the Marriage Allowance
N	You’ve transferred 10% of your Personal Allowance to your partner via the Marriage Allowance
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 a tax code
BR	All your income from this job or pension is taxed at the basic rate (usually 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 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 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 Scottish income tax rates
S0T	Your Personal Allowance (Scotland) has been used up, or you’ve started a new job, and your employer does not have the details they need to give you a tax code
SBR	All your income from this job or pension is taxed at the basic rate in Scotland (usually applied if you’ve got more than one job or pension)
SD0	All your income from this job or pension is taxed at the intermediate rate in Scotland (usually applied if you’ve got more than one job or pension)
SD1	All your income from this job or pension is taxed at the higher rate in Scotland (usually applied if you’ve got more than one job or pension)
SD2	All your income from this job or pension is taxed at the advanced rate in Scotland (usually applied if you’ve got more than one job or pension)
SD3	All your income from this job or pension is taxed at the top rate in Scotland (usually applied if you’ve got more than one job or pension)
C	Your income or pension is taxed using the income tax rates in Wales
C0T	Your Personal Allowance (Wales) has been used up, or you’ve started a new job, and your employer does not have the details they need to give you a tax code
CBR	All your income from this job or pension is taxed at the basic rate in Wales (usually applied if you’ve got more than one job or pension)
CD0	All your income from this job or pension is taxed at the higher rate in Wales (usually applied if you’ve got more than one job or pension)
CD1	All your income from this job or pension is taxed at the additional rate in Wales (usually applied if you’ve got more than one job or pension)
W1/M1/X	If your tax code has any of these combinations at the end, these are emergency tax codes
K	Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance. Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension – even if another organisation is paying the untaxed income to you.

 

You can check what your tax code means

If you need clarification on what your tax code means, you can use the government’s online tax code checker to find out.

How to update your tax code

If your income changes, HMRC will usually automatically update your tax code once they receive this information from your employer. However, if you believe your tax code is wrong, you can use the government’s online service to check your tax code and Personal Allowance. You can also contact HMRC via phone, email, post or Twitter using the information listed on the government’s website.

Request a tailored take-home pay illustration

Before registering with an umbrella company, requesting a tailored take-home pay illustration is a great idea to see what your net pay could be each week or month. Churchill Knight Umbrella will always provide a fully customized and accurate take-home pay illustration based on your circumstances, earnings and tax code (if you know it).

To request a tailored take-home pay illustration, please call our expert team on 01707 871622. You can also schedule a call, and a member of the team will contact you to discuss our umbrella service and answer any questions you may have.