What Is a Tax Code and How Does It Affect Your Pay?
By C.G. Handley
Your tax code is the short string of numbers and letters on your payslip that tells your employer how much income tax to take from your pay. If it is wrong, you can end up paying too much or too little, which only becomes obvious later. Understanding it takes only a few minutes.
What a tax code is for
In the UK, most employees pay income tax through PAYE (Pay As You Earn), which means tax is deducted before your wages reach your account. HMRC sends your employer a tax code, and the employer uses it to work out how much of your pay is tax-free. The code is a shorthand for the tax-free amount you are entitled to in the tax year, which runs from 6 April to 5 April.
Reading the numbers
The number in your code is a tenth of your tax-free allowance, with the last digit dropped. The standard code for most people is 1257L, which reflects the standard Personal Allowance of £12,570. A higher number means a larger tax-free amount, so less tax is deducted. A lower number means more tax. Allowances can change, so check the current rates on GOV.UK.
Reading the letters
- L means you are entitled to the standard Personal Allowance.
- M or N means you have transferred part of your allowance to or from a spouse or civil partner through the Marriage Allowance.
- T means your allowance includes other calculations that HMRC needs to review.
- BR, D0 and D1 mean all your pay from that job is taxed at the basic, higher or additional rate. These are often used for a second job or pension.
- 0T means you have no tax-free allowance for that income.
- K codes mean you have untaxed income or benefits that HMRC is collecting through your wages, so more is deducted.
Why your code may change
HMRC updates codes during the year when your circumstances change. Common reasons include starting a new job, receiving a company car or private medical insurance, claiming Marriage Allowance, receiving a state pension, having an underpayment from a previous year, or a change in your allowances. If your take-home pay changes without a pay rise, a new code is a likely cause.
Emergency tax codes
When you start a new job and your employer does not have your details, they may use an emergency code, often ending in W1, M1 or X. These work on a temporary basis and mean tax is calculated without considering earlier pay in the year. This can make you pay more tax than you owe for a short time. It usually corrects itself once HMRC receives the correct information, and any overpayment is normally refunded through payroll or by HMRC.
How to check your code
Your code appears on your payslip. You can also check it through your Personal Tax Account on GOV.UK, which shows how HMRC calculated it. If you think it is wrong, compare it with your circumstances. Do you have a second job? Have you claimed Marriage Allowance? Did you start or leave a job during the year?
What to do if it is wrong
Contact HMRC through your online account or helpline, explain what you think is incorrect, and ask for it to be corrected. Do not change anything through your employer, who is only allowed to use the code HMRC sends. If you have overpaid, you may receive a refund. If you have underpaid, HMRC may collect the balance through a future code or ask for payment. Citizens Advice can help if you are unsure.
Why it matters for payday
A tax code does not change what your employer agrees to pay you, but it does change the amount that arrives in your bank account. Knowing how to read it means you can spot mistakes early and plan around your true take-home pay.
This article is for general information only and is not financial or legal advice. For personal guidance, speak to a qualified adviser or an organisation such as MoneyHelper, Citizens Advice or ACAS.