With many people about to enjoy their first payday of the year following an expensive Christmas, it might be a good time to inspect your payslip. The Liverpool Echo says that all payslips should include an employee tax code, which indicates how much tax-free income they are entitled to in the tax year.
According to the Government's official website, the most common code is 1257L. This is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).
Gov.uk explains: "You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed." This means an employee with the most common tax code of 1257L can earn £12,570 before being taxed.
However, certain letters in your tax code can alter the meaning. If W1 and M1 appear at the end of the code then this indicates you are on an emergency tax code. This means employees are taxed only what they are paid in the current pay period and not the whole year. W1 stands for week one and M1 stands for month 1. An example of a code with this in is "577L W1".
The letter K also alters the meaning of your tax code. The government website explains: "The letter K is used in an employee’s tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their Personal Allowance.
"Multiply the number in their tax code by 10 to show how much should be added to their taxable income before deductions are calculated."
This means an employee with a tax code of K475 and a salary of £27,000 would have a taxable income of £31,750.
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