Ever heard of tax codes and wondered, “What are tax codes”? Then you are not alone. If you receive income through Pay As You Earn (PAYE), you may receive a tax code. UK tax codes are combinations of letters and numbers that serve as instructions from HM Revenue and Customs (HMRC). They tell your employer or pension provider how to calculate the Income Tax to deduct from your pay or pension.
HMRC sends tax codes to employees or pension providers to ensure they pay the right amount of tax on their income.
Your tax code reflects information such as your Personal Allowance and certain taxable income, benefits or deductions that affect how much Income Tax should be collected.
This blog explains what tax codes are, tax code meaning, standard tax codes, and where and how to check them.
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What are Tax Codes UK?
A tax code in the UK is a combination of numbers and letters that HMRC uses to tell your employer or pension provider how to calculate the Income Tax to deduct from your pay or pension.
Your UK tax codes reflect information such as your Personal Allowance, taxable benefits, untaxed income and other adjustments that may affect your PAYE calculation. This means a tax code can change if your circumstances change.
Therefore, you should check your tax code, particularly when you start or leave a job, receive taxable benefits or your circumstances change. Having an incorrect tax code can result in too much or too little Income Tax being deducted from your pay.
Check your tax code using our UK Tax Code Checker to help ensure the correct code is being applied to your circumstances.
What Does My Tax Code Mean?
Now that you know what tax codes are, let’s look at tax code meaning and how they work.
As mentioned above, a UK tax code is a combination of numbers and letters used by your employer or pension provider to calculate how much Income Tax to deduct from your pay.
UK Tax Codes Explained
Let’s understand what a tax code means in detail. If you have received a payslip, then you probably have seen the tax code on it. It consists of letters and numbers. The numbers represent your tax-free Personal Allowance, with the last digit removed. In contrast, the letters tell your employer how to apply that allowance, whether you get the full amount or a reduced amount.
How do Tax Codes Work?
Most UK tax codes contain numbers followed by a letter. However, some codes are special, such as BR, D0, D1, 0T, NT and K.
The numbers in the code generally relate to the amount of tax-free income allocated to that particular employment or pension. The letter gives HMRC and your employer information about your circumstances.
Example: Tax Code 1257L Meaning
For 2026/27, the standard Personal Allowance is £12,570. Generally, a tax code of 1257L indicates that the standard Personal Allowance applies. The number 1257 represents £12,570 when multiplied by 10, whereas L indicates entitlement to the standard Personal Allowance.
Nevertheless, you should not assume that every tax code can simply be read by multiplying the number by 10. HMRC can adjust the tax-free amount included in a code to reflect other income, benefits or deductions.
How to Check Your Tax Code?
When learning what tax codes are, it is important to understand how and where to check them. You can find your current tax code in several places, such as:
- Payslip: Look for “Tax Code” or “PAYE Tax Code”.
- HMRC app: Check your current tax code and Income Tax details.
- Personal Tax Account: View your tax code and the information HMRC uses to calculate it.
- P45: Shows the tax code used when you left a job.
Additionally, your P60 shows your pay and Income Tax for the tax year. However, it is not the main document for checking your current tax code.
To learn more about P45, read our blog “What is P45 Form and How to Get it.”
What Do the Tax Code Letters UK Mean?
Some of the most common tax code letters and their meaning are mentioned below:
L: This letter is the most common in the tax code and indicates employees are entitled to the standard tax-free Personal Allowance.
M: This letter indicates that the employee has received 10% of the spouse’s Personal Allowance through the Marriage Allowance.
N: The letter N means the employee has transferred 10% of their Personal Allowance to their partner.
T: The “T Tax Code” means that the employee’s tax code needs other calculations, such as complex benefits or adjustments for high income.
S: This means the employee’s tax is calculated using Scottish tax rules
C: This means the employee’s tax is calculated using Welsh tax rules.
What Are the Most Common Tax Codes?
You may see different tax codes depending on your income, employment, pension, and personal circumstances. Here are some standard tax codes:
| Tax code |
Tax code meaning |
| BR | All income from that particular job or pension is taxed at the basic rate. It is commonly used for a second job or pension where your Personal Allowance is being used elsewhere |
| D0 | All income from that particular job or pension is taxed at the higher rate. |
| D1 | All income from that particular job or pension is taxed at the additional rate. |
| K | A K code is used when the deductions or other taxable amounts included in your tax code are greater than your available tax-free allowance. |
| 0T | No Personal Allowance is available for that particular job or pension. This can happen when your allowance has been used elsewhere, or HMRC does not have enough information to calculate it. |
| NT | No Income Tax is deducted from that particular income. |
| W1, M1 or X | These are emergency tax code indicators. They mean PAYE is being calculated on a non-cumulative basis until HMRC has the information needed to apply the appropriate code. |
Visit the official government website for more details and a complete list of tax code letters.
Who Receives A Tax Code in the UK?
Now that you know what tax codes are, let’s learn who receives a tax code in the UK. People who receive income through PAYE, including employees and pension recipients, typically get a tax code.
HMRC provides the tax code to the employer or pension provider, who uses it to calculate the Income Tax to deduct from the employee’s pay or pension. It is responsible for allocating these codes and notifying both employees and employers.
Furthermore, if you start a new job, your new employer can use the information on your P45 to help determine the correct tax code. If you do not have a P45, you may need to complete a starter checklist.
How Employers Use Tax Codes
After understanding tax codes, it is also crucial to know how employers use them. HMRC provides employers with tax-code information electronically. They use this information through their payroll system. Then the tax code is used to calculate the Income Tax due on your pay.
Most codes are cumulative. This means payroll generally takes into account your total pay and Income Tax deducted since the start of the tax year when calculating the tax due on each payslip. However, HMRC may use an emergency tax code if you start a new job without a P45.
If you run a micro-entity and need help managing employee payroll, you can learn more about our payroll for micro entities service.
Emergency Tax Codes
You may get an emergency tax code when HMRC does not have enough information to issue the correct tax code. This happens when you start a new job (without a P45 ), and your employer does not yet have the information needed to apply the correct code.
The emergency code ends with W1, M1, or X. These indicate that the tax calculation is being made on a non-cumulative basis. So, if your code ends with one of these codes, you are on an emergency code.
Example:
For the 2026/27 tax year, emergency codes can appear as:
- 1257L W1
- 1257L M1
- 1257L X
Moreover, you may see NONCUM on your payslip, depending on your employer’s payroll software.
Why Has My Tax Code Changed?
HMRC can change your tax code when your income or circumstances change. Here are some common reasons:
- Starting a new job
- Starting or stopping taxable employment benefits
- Receiving income from another job or pension
- Receiving taxable state benefits
- Changes to your State Pension
- Changes to savings interest or other income
Changes to other information HMRC holds about your income and allowances can also lead to changes in UK tax codes.
You can check why your tax code has changed through HMRC’s online service or app.
What Happens if I Have the Wrong Tax Code?
If you have an incorrect tax code, it can cause you to pay too much or too little Income Tax through PAYE.
However, if you overpay, don’t panic because HMRC may correct the overpayment through your pay after updating your tax code. Additionally, if you underpay, HMRC may adjust your future tax code to collect the amount owed.
Keep in mind that a wrong tax code does not automatically result in a penalty.
Simplify Your Taxes With MicroEntityAccounts
Navigating tax codes can be a challenging task, and a lot of mistakes can happen, leading to unpleasant consequences for your business.
MicroEntityAccounts can help you keep your accounting and tax records organised and make sure you have the support you need to stay on top of your tax responsibilities.
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The Bottom Line
Understanding “what are tax codes” is vital to managing your taxes effortlessly and taking control of your finances. Your tax code is more than just a combination of numbers and letters. It tells your employer or pension provider how much Income Tax to deduct from your salary.
Find your tax codes and check them regularly when your circumstances change, and use your Personal Tax Account to make sure HMRC has the correct information.
Disclaimer: The information provided on MicroEntityAccounts is for informational purposes only and should not be considered financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.
