Have you ever looked at your payslip and wondered what those mysterious letters and numbers next to “Tax Code” actually mean? You’re not alone. Millions of UK employees receive incorrect tax codes every year, resulting in either overpaying tax (and waiting for refunds) or underpaying (and facing unexpected bills).
Understanding your tax code is crucial because it directly determines how much tax your employer deducts from your salary each month. A wrong tax code can cost you hundreds or even thousands of pounds over a year.
This comprehensive guide will demystify UK tax codes, explain what each letter and number means, show you how to check if yours is correct, and tell you exactly what to do if it’s wrong. By the end, you’ll be able to read your tax code like a pro and ensure you’re paying the right amount of tax—nothing more, nothing less.
Key takeaways:
- Check your tax code annually and whenever circumstances change
- Understand what your code means—now you can read the numbers and letters
- Act immediately if something looks wrong
- Claim refunds for overpayments promptly
- Get professional help for complex situations
What is a Tax Code?
A tax code is a combination of numbers and letters that tells your employer or pension provider how much Income Tax to deduct from your pay or pension. HMRC issues your tax code, and your employer uses it to calculate your tax through the PAYE (Pay As You Earn) system.
How Tax Codes Work
The numbers in your tax code typically represent the amount of income you can earn tax-free in that tax year, divided by 10.
Example: Tax code 1257L
- The number 1257 means you can earn £12,570 before paying tax
- Divide by 10 = £1,257 tax-free allowance per month (or £290.19 per week)
- The letter L indicates you’re entitled to the standard Personal Allowance
Your employer deducts tax only on earnings above this threshold, using the appropriate tax rates for each band.
Quick Reference: Common Tax Codes 2024/25
| Tax Code | What It Means | Who Has It |
| 1257L | Standard Personal Allowance | Most employees, one job, under £100k |
| 1382M | Marriage Allowance received | Married/civil partnership, received transferred allowance |
| 1131N | Marriage Allowance transferred | Married/civil partnership, transferred allowance to partner |
| S1257L | Scottish taxpayer | Living in Scotland |
| C1257L | Welsh taxpayer | Living in Wales |
| BR | Basic rate only, no allowance | Second job or pension |
| D0 | Higher rate only, no allowance | Second income source, high earner |
| D1 | Additional rate only, no allowance | Second income source, very high earner |
| 0T | No Personal Allowance | Earn over £125,140 or new job without P45 |
| K497 | Deductions exceed allowance | Significant benefits or unpaid tax |
| NT | No tax deducted | Very rare special circumstances |
| 1257L W1/M1 | Emergency tax code | New job, temporary until details confirmed |
The Standard Tax Code: 1257L
For the 2024/25 tax year, 1257L is the most common tax code, used by the majority of employees and pensioners with one job or pension.
What 1257L Means
- 1257: Your tax-free Personal Allowance is £12,570
- L: You’re entitled to the standard Personal Allowance with no adjustments
If you have one job, earn between £12,570 and £100,000, and have no additional complications (like company benefits or second jobs), 1257L should be your tax code.
How Much Tax You Pay with 1257L
With the 1257L tax code, you pay:
- 0% tax on the first £12,570 you earn
- 20% tax on earnings between £12,571 and £50,270 (basic rate)
- 40% tax on earnings between £50,271 and £125,140 (higher rate)
- 45% tax on earnings over £125,140 (additional rate)
Example: Annual salary: £35,000
- Tax-free: £12,570 (no tax)
- Taxable: £22,430 at 20% = £4,486 tax
- Total tax per year: £4,486
- Monthly take-home after tax and NI: approximately £2,277
Understanding Tax Code Letters
The letter in your tax code reveals important information about your circumstances and any adjustments to your Personal Allowance.
L – Standard Personal Allowance
Meaning: You’re entitled to the standard Personal Allowance (£12,570 for 2024/25)
Who has it: Most employees and pensioners with straightforward circumstances
Example codes: 1257L, 1260L, 1250L
This is the most common letter and indicates no special adjustments.
M – Marriage Allowance
Meaning: You’ve received a transfer of 10% of your partner’s Personal Allowance (£1,260)
Who has it: People whose spouse or civil partner earns less than the Personal Allowance and has transferred part of their allowance to you
Example codes: 1382M (£12,570 + £1,260 transferred = £13,820 tax-free)
Tax saving: Up to £252 per year
Marriage Allowance is available when one partner earns less than £12,570 and the other is a basic rate taxpayer (earning between £12,570 and £50,270).
N – Marriage Allowance Transfer
Meaning: You’ve transferred 10% of your Personal Allowance (£1,260) to your spouse or civil partner
Who has it: People earning under the Personal Allowance who’ve transferred part of their allowance to their partner
Example codes: 1131N (£12,570 – £1,260 transferred = £11,310 remaining)
If you have this code, your partner should have an M code.
T – More Complex Calculation
Meaning: HMRC needs to review other calculations or adjustments in your tax code
Who has it: People with complex tax affairs, high earners losing Personal Allowance, or those with various income sources
Example codes: 0T, 510T, 1200T
The T code is used when your tax situation doesn’t fit standard categories and requires special attention.
K – Deductions Exceed Personal Allowance
Meaning: You have deductions (like company benefits or tax owed from previous years) that exceed your Personal Allowance
Who has it: People with significant untaxed income, large company benefits, or outstanding tax from previous years
Example codes: K497, K850, K1200
How it works: Instead of a tax-free allowance, you have additional income added to your salary for tax purposes.
Example: K500 means £5,000 is added to your taxable income, so if you earn £30,000, you’re taxed as if you earned £35,000.
Important: Tax is never more than 50% of your income with a K code—HMRC applies a safeguard.
S – Scottish Tax Rates Apply
Meaning: You pay Scottish Income Tax rates, which differ from the rest of the UK
Who has it: People who live in Scotland (your main home is in Scotland on 6 April)
Example codes: S1257L, S1382M
Scottish tax rates for 2024/25:
- 19% starter rate: £12,571-£14,876
- 20% basic rate: £14,877-£26,561
- 21% intermediate rate: £26,562-£43,662
- 42% higher rate: £43,663-£75,000
- 45% advanced rate: £75,001-£125,140
- 48% top rate: over £125,140
C – Welsh Tax Rates Apply
Meaning: You pay Welsh Income Tax rates
Who has it: People who live in Wales (though currently Welsh rates match the rest of the UK)
Example codes: C1257L, C1382M
Currently, Welsh tax rates are the same as England and Northern Ireland, but Wales has the power to vary them in future.
BR – Basic Rate Only
Meaning: All income is taxed at the basic rate of 20% with no Personal Allowance
Who has it: People with second jobs or pensions
Example code: BR (no numbers)
If you have two jobs, your main job typically uses your Personal Allowance (1257L), while your second job uses BR, meaning every pound earned is taxed at 20%.
D0 – Higher Rate Only
Meaning: All income is taxed at the higher rate of 40% with no Personal Allowance
Who has it: Higher earners with second jobs or additional income sources
Example code: D0 (no numbers)
Used when you’re already using your Personal Allowance elsewhere and earn enough that additional income falls into the higher rate band.
D1 – Additional Rate Only
Meaning: All income is taxed at the additional rate of 45% with no Personal Allowance
Who has it: Very high earners with multiple income sources
Example code: D1 (no numbers)
Used when you’re already using your Personal Allowance and your total income places additional earnings in the 45% tax bracket.
0T – No Personal Allowance
Meaning: Your Personal Allowance has been used up or HMRC needs more information
Who has it:
- New employees who haven’t provided a P45
- People earning over £125,140 (Personal Allowance eliminated)
- People with complex tax situations
Example code: 0T (no numbers)
With 0T, you’re taxed at 20% on earnings up to £50,270, 40% on earnings between £50,271-£125,140, and 45% above that—but with no tax-free allowance.
This is often a temporary code until HMRC has proper information about your circumstances.
NT – No Tax
Meaning: You pay no tax on this income
Who has it: Very rare; typically people with specific circumstances like certain foreign diplomats or those earning below the Personal Allowance from multiple sources
Example code: NT (no numbers)
If you have this code and don’t understand why, contact HMRC immediately as it’s likely an error.
Emergency Tax Codes
Emergency tax codes are temporary codes used when your employer doesn’t have enough information to give you the correct code. They often result in overpaying tax, which you can reclaim later.
Common Emergency Codes
1257L W1, 1257L M1, or 1257L X:
- W1 = Week 1 basis
- M1 = Month 1 basis
- X = Non-cumulative
What they mean: Your tax is calculated only on what you earn in that specific week or month, without considering what you’ve earned or been taxed on earlier in the tax year.
Why this matters:
- You might pay too much tax if you had periods of lower or no earnings
- You don’t get credit for your cumulative Personal Allowance across the year
Example: Imagine you start a new job in December earning £3,000 per month.
With standard 1257L (cumulative):
- You’d have 9 months of unused Personal Allowance built up
- Your December pay would be largely tax-free
With 1257L M1 (non-cumulative):
- You only get 1/12 of your Personal Allowance (£1,047.50)
- You pay tax on £1,952.50, even though you haven’t earned anything earlier in the year
- You overpay tax and need to claim a refund
Why You Might Have an Emergency Code
- You’ve started a new job and haven’t provided a P45
- Your employer doesn’t have your National Insurance number
- You’ve recently become employed after being self-employed
- You’re receiving company benefits but HMRC hasn’t updated your code
What to Do
Emergency codes should be temporary. If you’ve been on one for more than a month:
- Provide your P45 to your employer (if you have one)
- Contact HMRC to update your information
- Your code should correct itself, and you’ll get any overpaid tax refunded
Special Circumstances Tax Codes
High Earners (Over £100,000)
Your Personal Allowance reduces by £1 for every £2 you earn over £100,000. It disappears entirely at £125,140.
Example tax codes:
- Earning £110,000: Tax code approximately 757L (£7,570 Personal Allowance remaining)
- Earning £125,140+: Tax code 0T or a very low number (no Personal Allowance)
This creates an effective tax rate of 60% on earnings between £100,000 and £125,140 (you lose Personal Allowance while paying 40% tax).
Company Car and Benefits
If you receive a company car, private medical insurance, or other taxable benefits, HMRC reduces your tax code to collect the tax owed on these benefits throughout the year.
Example:
- Standard Personal Allowance: £12,570
- Company car benefit value: £4,000
- Adjusted tax code: 857L (£12,570 – £4,000 = £8,570)
You now have a smaller tax-free allowance, so more tax is deducted from your salary to cover the benefit.
Multiple Jobs or Pensions
When you have more than one job or pension:
Primary job/pension: Usually receives your Personal Allowance (1257L)
Second job/pension: Usually gets BR, D0, or D1 depending on your total earnings
Third or subsequent jobs/pensions: Also typically BR, D0, or D1
It’s crucial that only one employer/pension provider uses your Personal Allowance—otherwise, you’ll underpay tax and face a bill later.
Pension Contributions
If you contribute to a workplace pension, this usually reduces your taxable income automatically before tax is calculated. Your tax code generally doesn’t need adjustment.
However, if you contribute to a personal pension and pay relief at source, your tax code might be adjusted to give you higher-rate tax relief.
Student Loans
Student loan repayments are collected through PAYE but don’t affect your tax code. They’re calculated separately based on your earnings and appear as a separate deduction on your payslip.
How to Check if Your Tax Code is Correct
An incorrect tax code can cost you money. Here’s how to verify yours is right.
Step 1: Find Your Tax Code
Your tax code appears on:
- Your payslip
- P45 (when leaving a job)
- P60 (annual summary, issued each April)
- PAYE Coding Notice from HMRC
- Your Personal Tax Account online
Step 2: Check Your Circumstances
Ask yourself:
- Do I have one job or multiple jobs?
- Do I receive any company benefits?
- Am I married/in a civil partnership with Marriage Allowance?
- Do I earn over £100,000?
- Do I live in Scotland or Wales?
- Have I recently changed jobs?
- Do I owe tax from previous years?
Step 3: Compare Against Expected Code
Standard situation (one job, no benefits, earnings under £100,000): Expected code: 1257L (or S1257L in Scotland, C1257L in Wales)
Second job: Expected code: BR, D0, or D1
Company benefits: Expected code: Lower than 1257L by the value of benefits ÷ 10
High earner: Expected code: Lower than 1257L based on income over £100,000
Step 4: Check for Emergency Codes
If your code has W1, M1, or X, you’re on an emergency code and likely overpaying tax.
Step 5: Use HMRC’s Online Tool
HMRC’s “Check your Income Tax” service in your Personal Tax Account shows:
- Your current tax code
- How it’s calculated
- What adjustments have been made
- Whether you’re owed a refund or owe tax
Access it at: https://www.gov.uk/personal-tax-account
Not sure if your tax code is correct? We offer free tax code reviews where we check your code against your circumstances and identify any errors costing you money. Contact us today for peace of mind.
Common Tax Code Errors and How They Happen
Despite HMRC’s best efforts, tax code errors are common. Here are the most frequent mistakes:
1. Wrong Tax Code After Changing Jobs
The problem: Your new employer may not have your P45 or correct information
The result: Emergency tax code (1257L M1 or W1), causing overpayment
The fix: Provide your P45 to your new employer immediately, or contact HMRC to update your details
2. Benefits Not Updated
The problem: You’ve started or stopped receiving company benefits, but HMRC hasn’t updated your code
The result: Underpaying or overpaying tax on benefits
The fix: Ensure your employer reports benefits correctly through P11D forms, and check your code each July when benefit values are updated
3. Multiple Jobs Not Coordinated
The problem: More than one employer is giving you your Personal Allowance
The result: Significant underpayment throughout the year, leading to a large tax bill
The fix: Contact HMRC immediately to allocate your Personal Allowance to your main job only
4. Marriage Allowance Not Applied
The problem: You’re eligible but haven’t claimed, or have claimed but it’s not reflected in your code
The result: Paying more tax than necessary (up to £252 per year)
The fix: Apply for Marriage Allowance at https://www.gov.uk/marriage-allowance, or check with HMRC if you’ve applied but don’t see M or N in your code
5. Still on Emergency Code Months Later
The problem: You started a new job months ago but remain on an emergency code
The result: Overpaying tax every month
The fix: Contact HMRC or use their online service to update your employment details
6. Wrong Residence for Scottish/Welsh Tax
The problem: HMRC has recorded you as living in Scotland or Wales when you don’t (or vice versa)
The result: Wrong tax rates applied
The fix: Contact HMRC to update your address and tax residence
7. Previous Year’s Tax Still Being Collected
The problem: You underpaid tax in a previous year, and HMRC is collecting it through your code, but the amount is wrong or already paid
The result: Excessive deductions from your salary
The fix: Check your tax calculation and contact HMRC if the deduction is incorrect
How to Fix an Incorrect Tax Code
If you’ve identified an error in your tax code, here’s exactly what to do:
Option 1: Online Through Personal Tax Account (Fastest)
- Go to https://www.gov.uk/personal-tax-account
- Sign in with your Government Gateway credentials
- Select “Check your Income Tax”
- Review your tax code calculation
- Select “Update your employment details” if information is wrong
- HMRC will review and update your code, usually within 2-3 days
Option 2: Call HMRC
Income Tax helpline: 0300 200 3300
Opening hours: Monday to Friday, 8am to 6pm
Have ready:
- Your National Insurance number
- Your tax code
- Details of why you think it’s wrong
- Your employment and income information
Option 3: Write to HMRC
Write to your local HMRC office (address on your PAYE Coding Notice) explaining the error and providing supporting information.
This is the slowest method—use it only if you can’t use online or phone options.
What Happens Next
Once HMRC updates your code:
- They’ll send you a PAYE Coding Notice explaining the change
- They’ll notify your employer(s)
- Your employer will apply the new code from the next payroll
- If you’ve overpaid tax, you’ll usually get a refund automatically (within 30-45 days) or through adjusted future deductions
- If you’ve underpaid, HMRC will either adjust your code to collect it gradually or send you a bill
Claiming a Refund
If your incorrect code meant you overpaid tax, you’re entitled to a refund going back up to 4 years.
For current year overpayments: Usually refunded automatically once your code is corrected
For previous year overpayments:
- Complete form P50 (if you’ve stopped working)
- Complete form P53 (if you receive a pension)
- Use HMRC’s online service to claim
- Wait for a cheque or bank transfer (typically 4-6 weeks)
Tax Codes for Specific Situations
Starting Your First Job
When you start your first job, you complete a “Starter Checklist” (formerly P46) telling your employer:
- Whether this is your only job
- Whether you have another job
- Whether you receive a pension
Based on your answers, you’ll receive:
- 1257L: If it’s your only job and you haven’t had a job this tax year
- 1257L M1 or W1: Emergency code if your employer needs more information
- BR: If you have another job
Returning to Work After Time Off
If you’ve been unemployed or away from work:
- Provide your P45 from your previous employer
- If you don’t have a P45, you’ll likely go on an emergency code initially
- Once HMRC processes your details, you’ll get the correct code
State Pension
State Pension is taxable, though it’s paid without tax deducted. Instead:
- If you’re still working, your tax code is reduced to collect tax on your State Pension
- If you’re only receiving State Pension below the Personal Allowance, you pay no tax
- If you have State Pension plus a private pension, your private pension provider collects tax on both
Example:
- State Pension: £11,500 per year
- Personal Allowance: £12,570
- Adjusted tax code for private pension: 107L (£12,570 – £11,500 = £1,070)
Your private pension provider deducts tax accounting for both your pension and State Pension.
Maternity/Paternity Leave
Your tax code usually doesn’t change during maternity or paternity leave. However:
- Statutory maternity pay is taxable but often falls within your Personal Allowance
- You might overpay tax if you return to work part-way through a tax year
- Check your code when you return to ensure it’s correct
Redundancy and Severance
The first £30,000 of genuine redundancy pay is tax-free. Your employer should:
- Not apply tax to the first £30,000
- Apply your normal tax code to anything above £30,000
- Apply your normal tax code to notice pay, holiday pay, and other payments
If tax is deducted incorrectly, you can claim it back.
Conclusion
Your tax code might seem like a trivial administrative detail, but it directly determines how much of your hard-earned money you keep versus what goes to HMRC. An incorrect code can silently drain hundreds or thousands of pounds from your pocket over a year.
The good news is that checking your tax code takes just a few minutes, and correcting errors is straightforward once you know how. Don’t assume HMRC always gets it right—mistakes happen frequently, and it’s your responsibility to ensure you’re paying the correct amount.
Taking control of your tax code is one of the simplest ways to ensure you’re not overpaying tax unnecessarily.
