HMRC assigns tax codes to inform employers how much tax should be deducted from an employee’s salary. Here we look at what the series of numbers and letters signify, and how they affect your income.
You will typically receive a tax coding notice between January and March, or at other times should your situation change – such as if you file your self assessment tax return a few months before the deadline.
For example, if you’re entitled to the full personal allowance during 2023/24 (tax code 1257L), but subsequently earn over £100,000 during the tax year (after which point the value of your personal allowance is reduced), your tax code for the following tax year will be updated on the presumption that you’ll earn the same amount the following year.
What do the letters and numbers mean?
Most tax codes have a series of numbers followed by a letter. The codes let your employer know the value of your personal allowance for the current tax year and any special circumstances which will affect how much tax is deducted from your income.
If you multiply the number element by ten, this is the value of your tax-free allowance, so 1257L signifies that the employee is entitled to earn £12,570 free of income tax. 400L means £4,000 and so on.
Common tax codes
|L||The employee is entitled to receive the basic personal allowance (the number signifies how much), e.g. 1257L = £12,570|
|M||You have received 10% of your partner’s Personal Allowance courtesy of the (Marriage Allowance).|
|N||You have transferred 10% of your Personal Allowance to your partner (via the Marriage Allowance).|
|0T||Your entire personal allowance has been used up (e.g. if you earn over £125,140 during 2023/24). Alternatively, you may not yet have received a P45 from your previous employer, or not enough information exists to provide you with a tax code.|
|T||HMRC requires further information before a tax code can be assigned.|
|BR||All of your income should be taxed at the basic rate (20%).|
|D0||All of your income should be taxed at the higher rate (40%).|
|D1||All of your income should be taxed at the additional rate (45%).|
|W1||This is an 'emergency' tax code, based on your pay during the specific period (paid weekly), rather than taking account your earnings over the entire tax year.|
|M1||As above, an emergency tax code, applies if you're paid monthly.|
|K||If this appears as a prefix to your tax code, you're liable for tax which isn't being collected another way, e.g. backtaxes from a previous year, or benefit in kind payments.|
|NT||No tax is payable on your income.|
We have not listed various codes specific to Wales or Scotland in this list. You can read the full list here.
Possible reasons for a tax code change
If you have more than one source of income (i.e. two or more jobs), you may receive more than one tax code. Typically the second job will be assigned the BR (basic rate) code.
Many things can affect your tax code for the subsequent year, for example:
- The value of the personal allowance will usually increase from year-to-year, e.g. it rose from £12,500 to £12,570 from 2020/21 to 2021/22 – so if you’re entitled to the full allowance, your tax code will have changed from 1250L to 1257L.
- You earned more or less than you did in the previous tax year – this is the most common reason why your tax code will have changed.
- You may have received benefits in kind from your company, e.g. use of a company car, or other items/services which have a personal benefit, but were paid for by your business.
- You may have received additional income during the tax year, such as rental or investment income.
- You may have received taxable state benefits.
What to do if your tax code is wrong
The first port of call should be your accountant (if you run your own company), or umbrella company. If the problem cannot be identified by your service provider, you may need to call HMRC directly.
Either give them a call on 0300 200 3300 or submit this online PAYE coding notice query.
Make sure you have your UTR (unique taxpayer reference), PAYE reference (on your payslip), and National Insurance number to hand.