While residing in the UK, everyone knows that they are liable to pay tax to the HMRC. For making timely payments to the HMRC, the residents have to file a tax return against a unique ID assigned to them by the HMRC. This is known as a tax reference number. What is a tax reference, and why is knowing your tax reference important for filing tax returns? Read this article to have an idea.

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What is a tax reference?

A tax reference number is issued as a unique ID by the UK government to every taxpayer for filing tax returns and other payments to the HMRC. The tax reference number is also known as the PAYE reference number. This number consists of letters and numbers in a specific format assigned to employers and occupational pension providers by the HMRC. This number is compulsory for abiding by the rules and payroll taxation regulations of the UK government.

In general, this number is formatted as

123/A45678,

Consisting of 3 numbers separated by a letter followed by 5 specific numbers.

Why Employers Need a Tax Office Reference Number?

The tax reference serves as a tax ID for each person. The employers need the tax reference to ensure that accurate tax is paid for each individual and an accurate record is maintained by the HMRC. This number is also imperative for deducting the national insurance contribution of salaried persons.

Compliance with Tax Office Reference Number regulations is important for avoiding penalties from the tax office handling the taxation matters, but it is also crucial for keeping efficient payroll management, tracking pension contributions, and effective record-keeping.

How is PAYE relevant in this regard?

The amount of tax paid by a taxpayer is based on the annual income. The HMRC gives a tax code to the employees. The tax code depends upon the difference in earnings of the employees. Employers of the companies use this code to calculate the amount of tax. The amount of tax is then deducted automatically from the account of the employee through PAYE. The tax code for the current year can be found on the pay slip of the employee or from GOV.UK.

There is a limited amount of earnings that is exempt from tax; this is called personal allowance. In the financial year 2025/2026, the personal allowance on the basic tax rate is £12,570. For earnings above £12,570, you are imposed tax depending on the increase in taxable income. This simply implies that the more you earn, the more tax you pay to the HMRC.

If the annual earnings of an individual in the UK are £125,140, then the person cannot claim the personal allowance. The HMRC has also set other criteria for personal allowance, such as the Marriage Allowance, the Personal Savings Allowance, and the Dividend Tax Allowance.

What is a tax reference in the case of national insurance contributions?

What is a tax reference in the case of national insurance contributions? It is the same number of national insurance contributions as well. In the UK, national insurance is a tax paid by the residents, which is used as funds for social security benefits by the UK government, such as state pensions or health benefits. National insurance is paid by all individuals, whether employed in a company or self-employed.

The amount of national insurance imposed on an individual depends on the annual income. The HMRC has created classes for this purpose. An individual’s class of national insurance may depend on their employment status. The classes of national nsurance are labelled as 1,2 and 4 contributions.

If you’re employed

If  you are employed, the national insurance is  deducted as a Class 1 national contribution from your salary only if you are

• Below the age limit described by HMRC
• earning above £242 weekly by doing one job

Employers only pay Class 1A and Class 1B national insurance for the benefits they have provided to the employee and the employee’s expenses.

If you earn less than £242 a week from one job

If an individual is earning less than £242 (between £123 and £242) per week from one job, then he is not liable to pay the national insurance; however, he is still eligible to enjoy certain benefits from the UK government, such as state pension and national health services.

If the weekly earnings of an individual are less than £123 a week from one job, he may choose to pay Class 3 contributions of national insurance to cover the gaps in the national insurance record.

If you’re self-employed

The amount of national insurance contribution to be paid by a self-employed person is based on their annual profit.

If you profit £6,725 or above

To compensate for any missed National Insurance contributions, Class 2 National Insurance contributions are paid. In case a business is earning more than £12,570 annually, it is liable to pay Class 4 national insurance contributions.

If you profit below £6,725 a year

In such a case, you are not imposed any class of national insurance; however, you may choose to pay voluntary national insurance to avoid gaps.

Directors, Landlords, and Share Fishermen

Different national insurance rules are set by HMRC for directors, landlords, and fishermen. Directors are considered as employees in a company, and they must pay national insurance on annual income from salary and bonuses over £12,570. If you are a landlord and rent your property, then a class 2 National Insurance contribution is imposed if

• you are landlord by profession
• your multiple properties are rented out
• you’re buying new properties to rent out

A share fisher is classified as self-employed in the UK and must register for national insurance at the HMRC. If you are a share fisher, you are eligible to pay a special rate of Class 2 National Insurance contributions. If the profits you earn as a share fisher are below the threshold of small profits, then you are not eligible to pay Class 2 national insurance contributions.

Conclusion

What is a tax reference number? It is answered as a number assigned to each individual residing in the UK. This number allows accurate tax returns by employers and occupational pension providers. The tax reference also helps in paying national insurance contributions to the HMRC. There are different tax limits for the self-employed and employees of a company. The tax reference is essential for complying with the rules and regulations of taxation by the HMRC.

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Disclaimer: The information about the tax on what a tax reference number is provided in this blog includes text and graphics of a general nature. It does not intend to disregard any of the professional advice.