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Understanding your HMRC tax code is essential for ensuring you’re paying the correct amount of income tax through the Pay As You Earn (PAYE) system. While the codes might seem confusing at first, learning how to read and interpret them can help you avoid underpayments, overpayments, and unexpected tax bills.
This guide explains what a tax code is, how the numbers and letters are structured, and what to do if your tax code is incorrect.
What is a Tax Code?
A tax code is issued by HM Revenue and Customs (HMRC) and tells your employer or pension provider how much income tax to deduct from your pay or pension. Your tax code is based on your personal tax-free allowance and takes into account factors like benefits in kind, additional income, or previous underpayments.
The code is designed to ensure that the right amount of tax is deducted throughout the year, rather than in one lump sum.
Assigned by HMRC
HMRC sends your tax code to your employer, who then uses it to calculate how much tax to deduct. You’ll usually receive a copy of your tax code notice by post or via your personal tax account online.
Reflects Personal Allowance
The tax code is based on your Personal Allowance—the amount of income you can earn each tax year before paying tax. For the 2023/2024 tax year, this allowance is £12,570 for most individuals.
Affects How Much Income Tax You Pay
If your tax code is wrong, you could end up paying too much or too little tax. That’s why it’s important to understand what your code means and keep it up to date.
What Do the Letters and Numbers in a Tax Code Mean?
A typical tax code is made up of a series of numbers followed by one or more letters, such as 1257L.
Example: 1257L
This is the standard tax code for most people in the 2023/2024 tax year. The number 1257 refers to your tax-free allowance (£12,570). The “L” indicates you’re eligible for the standard Personal Allowance.
Explaining the Numbers
To work out your allowance, simply multiply the number by 10. So, 1257 becomes £12,570. This is the amount you can earn before paying income tax.
Common Tax Code Letters
Here’s what some of the most common letters mean:
- L – You’re entitled to the standard tax-free Personal Allowance.
- M – You’ve received 10% of your partner’s Personal Allowance through the Marriage Allowance.
- N – You’ve transferred 10% of your Personal Allowance to your partner.
- T – Your code includes other calculations, or HMRC needs to review more details.
- BR – All your income from this source is taxed at 20%, with no tax-free allowance.
- D0 – All income from this source is taxed at 40%.
- D1 – All income from this source is taxed at 45%.
What is the 1257L Tax Code?
The 1257L tax code is the most common for the 2023/24 tax year. It reflects the standard Personal Allowance of £12,570.
Most Used in 2023/24
If you’re employed and have no special adjustments or additional income, you’re likely on this tax code. It means you’re not receiving any taxable benefits or repaying past underpayments through your tax code.
Means £12,570 Tax-Free Income
The first £12,570 you earn in the tax year is not taxed. Any income above this is subject to the applicable income tax bands.
Applies to People With No Adjustments
This tax code is typically used by those with one job and no benefits in kind or other taxable income streams.
What Are Emergency Tax Codes?
Emergency tax codes are temporary codes used when HMRC or your employer doesn’t have enough information to assign the correct one.
W1 and M1
These stand for “Week 1” and “Month 1”. If you’re paid weekly, W1 applies. If you’re paid monthly, M1 applies.
Temporary Code
These codes treat each pay period as if it’s the first of the year. This means you won’t receive your full tax-free allowance all at once.
Usually Applied With No Previous Income Details
They’re often used when starting a new job and your employer hasn’t received a P45 from your previous job.
Removed After New Tax Documents Are Received
Once HMRC receives accurate details—like a P45 or a new starter checklist—they’ll update your tax code, and any overpaid tax is usually refunded automatically.
Other Common Tax Codes Explained
Some codes indicate that all income is taxed at a specific rate or that adjustments have been made due to benefits or unpaid tax.
BR – Basic Rate
This code means all your income from that employment is taxed at 20%, with no Personal Allowance applied. It’s usually used for second jobs or pensions.
D0 – Higher Rate
Income from this source is taxed entirely at 40%. It’s also used for second incomes when the first job has used up the tax-free allowance.
D1 – Additional Rate
Income is taxed entirely at 45%. This applies to very high earners with multiple sources of income.
K Codes
K codes indicate that deductions (such as tax owed or benefits received) are greater than your Personal Allowance. The number shows how much must be added to your taxable income when working out your PAYE.
For example, K200 means your employer adds £2,000 to your income before calculating how much tax to deduct.
How to Check and Update Your Tax Code
Your tax code appears on your payslip, P45, P60, or on your HMRC tax code notice. If you’re unsure, it’s a good idea to check it through the HMRC online portal.
Through HMRC Portal
You can log in to your personal tax account on the HMRC website or mobile app to see your current tax code and update your employment details.
When You Change Jobs
Always make sure your new employer receives your P45. If not, they may use an emergency tax code until HMRC provides the correct one.
After Receiving P45 or P60
These documents contain details about your income and tax paid to date. Use them to confirm that the right code is being used.
Why Your Tax Code Might Be Wrong
There are several reasons your tax code might be incorrect:
- You’ve recently changed jobs and your new employer didn’t get your P45.
- You receive benefits in kind such as a company car or medical insurance.
Understand your payslips and deductions better with help from our expert payroll accountants who manage payroll accuracy and HMRC compliance for UK businesses.
- HMRC is collecting unpaid tax from a previous year through your tax code.
- You’ve started drawing a pension or taken on a second job.
Mistakes can happen, and even small changes in income or employment status can trigger a code change.
What to Do If You Think Your Tax Code Is Incorrect
If you suspect your tax code is wrong, it’s important to act quickly to avoid paying too much or too little tax.
Contact HMRC Directly
You can call or write to HMRC to discuss your tax code. Be sure to have your National Insurance number and employment details on hand.
Review Your PAYE Coding Notice
This notice, sent by HMRC, shows how your tax code has been calculated. Review it carefully for any errors or outdated information.
Submit Updated Employment Info
If you’ve changed jobs or started receiving new benefits, update your details through the HMRC portal or by contacting them directly.
Conclusion
Tax codes might look like a confusing mix of numbers and letters, but they play a vital role in how much tax you pay. By understanding your HMRC tax code, checking it regularly, and updating your information as needed, you can ensure your PAYE tax is correct and avoid surprises down the line.
Frequently Asked Questions
What is the standard tax code in the UK?
The standard tax code for most people in the 2023/24 tax year is 1257L. It reflects the standard tax-free Personal Allowance of £12,570.
What does the L in a tax code mean?
The letter L indicates you’re entitled to the standard Personal Allowance.
Why do I have an emergency tax code?
You may have an emergency code if you’ve started a new job and your employer doesn’t have your previous tax information, like a P45.
Can I change my tax code myself?
You can’t change your tax code directly, but you can update your employment and income details through HMRC. They will then issue a revised tax code if needed.
How do I know if my tax code is wrong?
Check your payslip, HMRC tax notices, and your online account. If you notice unexpected tax deductions or multiple codes, it may be worth investigating.
Get personalised advice from Alba’s financial accountants to ensure your tax code, income, and deductions are handled correctly all year round.
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