Tax code BR is one of the most popular tax codes but very few people seem to know what it is? We explain how tax code BR affects your take home pay? Why you might have a tax code BR? And how to change tax code BR if it is incorrect?
The tax code BR stands for basic rate.
It means that all of the income will be taxed at basic rate which in the tax year 2021/22 is 20%.
Therefore you aren’t receiving a personal allowance on this income. The personal allowance is the tax free amount you can earn before paying income tax. This is currently £12,570. (Tax Year 2021/22)
As an example let’s say that 1 of your sources of income earns you £20,000 per annum.
With a tax code BR you will pay income tax (PAYE) of £4,000 over the year. If paid monthly your net pay before national insurance would be £1,333.33.
With a tax code 1257L you will pay income tax (PAYE) of £1,486 over the year. If paid monthly your net pay before national insurance would be £1,542.83.
Note: Tax code 1257L is the typical tax code in tax year 2021/22 – see our blog tax code 1257L
In the example above we stated an example with £20,000 income. What we haven’t stated is what happens if there are multiple income sources.
Each income source will have a different tax code. Therefore if you have 2 employments, 1 private pension and the state pension, you would have 4 different tax codes.
As an example if you had 2 sources of income both earning £20,000 per annum. You would have 1 source of income with tax code 1257L and the 2nd with a tax code BR.
You only receive 1 personal allowance*.
This is typically allocated to your regular income which is the highest amount each year. Therefore this source of income would have the tax code 1257L.
As your main source of income is using the personal allowance. Therefore any additional income needs to be given a tax code without a personal allowance. Hence tax code BR is used.
So if you have multiple sources of income you are likely to have at least 1 source with a tax code BR.
* Note: Should your income exceed £100,000 your personal allowance is reduced down by £1 for every £2 over. Therefore income exceeding £125,140 will have no personal allowance.
If HMRC doesn’t have up to date records you may therefore be given a tax code BR.
This typically happens when your situation changes during a tax year. Changing employment, starting employment, ceasing employment, receiving pension income.
All of these can potentially cause issues with tax codes.
HMRC allocate tax codes based on expected income from your different income sources.
Let’s say you have 4 sources of income. These are 2 employments, 1 private pension and 1 state pension. If you cease your main employment income, the 3 remaining incomes may fall into lower tax rates. If this happens then they may all need new tax codes issuing.
The basic rate allowance (including personal allowance) is up to income of £50,270. (Tax year 2021/22). If your income is then expected to exceed this you may be allocated tax code D0 or D1.
Tax code D0 is used to tax income at the higher rate. This is income between £50,270 and £150,000.
Tax code D1 is used to tax income at the additional rate. This is income over £150,000.
If you suspect that you have an incorrect tax code. We recommend you phone HMRC on 0300 200 3300. Other ways to contact HMRC about an incorrect tax code can be found using the following link – Contact HMRC
You will need your national insurance number. They will then ask you what sources of income you have and how much you expect to earn on each source. This information will allow HMRC to ensure that the tax codes are correct.
Incorrect tax codes will mean that you have either overpaid or underpaid tax. As a result, we strongly recommend that you don’t delay in contacting HMRC.
Recommended Further Reading:
Tax Code 1257L – how to check your tax code is correct?
National Minimum Wage – are you earning above the required legal amount?
Married Couples Allowance – are you entitled to claim over £1.2k from HMRC?
DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer