HMRC assigns tax codes to inform employers how much tax to deduct from an employee’s salary. Here, we look at what the series of numbers and letters signifies and how they affect your income.
Your tax code determines how much income tax is deducted from your salary. If it’s wrong, you could be overpaying or underpaying tax, so it’s worth checking it each year.
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.
If you are a limited company contractor paying yourself a salary, or working via an umbrella company, your tax code will directly affect your take-home pay.
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
| Letter | Description |
|---|---|
| L | The employee is entitled to receive the basic Personal Allowance (the number signifies how much), for example 1257L = £12,570. |
| M | You have received 10% of your partner’s Personal Allowance via 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 or reduced to zero (for example, if you earn over £125,140 during the 2024/25 tax year). It may also apply if HMRC has not yet received a P45 or has insufficient information. |
| T | HMRC requires further information before a final tax code can be issued. |
| BR | All income is taxed at the basic rate of 20%. |
| D0 | All income is taxed at the higher rate of 40%. |
| D1 | All income is taxed at the additional rate of 45%. |
| W1 | An emergency tax code based on weekly pay, without taking total earnings for the tax year into account. |
| M1 | An emergency tax code based on monthly pay, without taking total earnings for the tax year into account. |
| K | Indicates tax is owed that cannot be collected another way, such as underpaid tax from a previous year or taxable benefits in kind. |
| NT | No tax is payable on your income. |
Scottish (S) and Welsh (C) prefixes may also apply, depending on where you live, for tax purposes.
We have not listed various codes specific to Wales or Scotland in this list. You can read the full list here.
Cumulative vs non-cumulative tax codes
Most tax codes are cumulative, meaning your tax is calculated based on your total earnings for the year to date.
Codes ending in W1 or M1 are non-cumulative (often called emergency tax codes). These calculate tax based only on that pay period, which can result in higher deductions until corrected.
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 change over time (for example, from £12,500 to £12,570) – so if you’re entitled to the full allowance, your tax code may also change.
- 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 that provide 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
Your 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.
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