Understanding your tax code
You’ve probably seen the combination of letters and numbers that make up your tax code on your payslip, P60 or P45. But what do they mean? Find out in our guide to tax codes.
You’ve probably seen the combination of letters and numbers that make up your tax code on your payslip, P60 or P45. But what do they mean? Find out in our guide to tax codes.
What is a tax code?
Your tax code is used to show how much income tax you need to pay on your pay or pension. HM Revenue and Customs (HMRC) assigns tax codes based on your tax-free personal allowance, all your sources of income and any benefits you receive, such as a company car. They then tell employers and pension providers which tax code to use. The amount of PAYE (Pay As You Earn) tax is taken straight from your salary before the money hits your bank account.
What does my tax code mean?
Tax codes are usually four numbers and a letter. The numbers in a tax code (multiplied by 10) usually show how much tax-free income you get in a financial year. The letters indicate your personal circumstances and how they affect your personal allowance (the amount of income you don’t have to pay tax on).
If you have just one job or one pension, and no taxable benefits, your tax code is currently likely to be 1257L. This is the most common tax code for basic rate taxpayers with one source of income.
The letter ‘L’ means you get the standard personal tax allowance, which is £12,570.
But other letters are used in tax codes too. The table below shows what different tax codes in the UK mean.
| Letter | Meaning |
|---|---|
| K (at the beginning) | You have tax due – for example, from a previous year – that’s worth more than your personal allowance. If you multiply the number next to the K by 10, you’ll see the additional amount that will be added to your taxable income before your tax is calculated. |
| L | You’re entitled to the standard tax-free personal allowance of £12,750. |
| M | This stands for Marriage Allowance. It means your partner has transferred 10% of their personal allowance to you. |
| N | You’ve transferred 10% of your personal allowance to your partner. |
| T | Your tax situation is a bit more complex and needs to be reviewed to work out your personal allowance. |
| OT | You’ve started a new job and you haven’t given your employer enough details to give you a tax code or you’ve already used up your personal allowance. |
| BR | This stands for ‘basic rate’. It’s usually used if you have more than one job or pension, and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the basic rate of 20% rather than including your personal allowance. |
| D0 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the higher rate of 40%. |
| D1 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the additional rate of 45%. |
| NT | You don’t pay any tax on this income. This might be for several reasons, for example you may be self-employed and so not on PAYE (pay as you earn) tax arrangements. Or you may be living overseas in a country that has a double taxation agreement with the UK. |
| S | This income is taxed using Scotland’s income tax rates. |
| S0T | You’ve used up your Scottish personal allowance of £12,570 or you haven’t given your employer the details they need to give you a tax code. |
| SBR | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the basic rate in Scotland of 20%. |
| SD0 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the intermediate rate in Scotland of 21%. |
| SD1 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the higher rate in Scotland of 41%. |
| SD2 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the top rate in Scotland of 46%. |
| C | Your main home is in Wales, so you’re taxed according to Welsh tax bands. |
| C0T | You’ve used up your Welsh personal allowance of £12,570 or you haven’t given your employer the details they need to give you a tax code. |
| CBR | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the basic rate in Wales of 20%. |
| CD0 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the higher rate in Wales of 40%. |
| CD1 | This code is usually used if you have more than one job or pension and have used your personal allowance against that other source of income. It means all income from this job or pension is taxed at the additional rate in Wales of 45%. |
| M1 (at the end) | An emergency tax code if you’re paid monthly. It means you’re taxed on what you’ve earned during the month, rather than the whole year. This could end up in you paying more than you should. |
| W1 (at the end) | An emergency tax code if you’re paid weekly. It means you’re taxed on what you’ve earned during the month, rather than the whole year. This could end up in you paying more than you should. |
| X (at the end) | An emergency tax code if you’re paid neither weekly nor monthly. It means you’re taxed on what you’ve earned during the pay period rather than the whole year. This could end up in you paying more than you should. |
How can I check my tax code?
You can find your tax code on your:
- Payslip
- P45 – you’ll receive this when you stop working for an employer
- P60 – the annual tax summary you get from your employer.
You can also use the check your income tax service at GOV.UK. This can also show you your tax code for a previous tax year as well as your tax code for the next tax year, whether your tax code has changed and how much tax you’re likely to pay.
Why might my tax code change?
Your tax code can change if you:
- Change jobs – this might result in you being put on emergency tax if you don’t give your new employer a P45.
- Have a change in salary.
- Start working for an employer when you’ve previously been self-employed.
- Start or stop getting taxable work benefits.
- Start drawing the State Pension or other taxable state benefits.
- Claim the Marriage Allowance, which lets you transfer part of your Personal Allowance to your husband, wife or civil partner.
- Claim expenses that you’re eligible for tax relief on – for example, under some circumstances you can claim for business phone calls if you work from home.
To avoid any problems, you can tell HMRC if you’ve had a change in income that might affect your tax code. You can do this online using GOV.UK’s check your income tax service.
What can I do if I have the wrong tax code?
Contact HMRC as soon as possible if you think your tax code is wrong. You do this by calling 0300 200 3300. You can also update your employment details using GOV.UK’s check your income tax service.
When you start a new job, you should give your employer your P45 or fill in details of your previous employment on a ‘new starter checklist’ which they should provide. This should ensure you’re put on the right tax code, but if you find you’re still on emergency tax, contact HMRC immediately.
It's important to sort out any errors on your tax code. If you don’t, you could pay more tax than you need to or end up owing tax and getting a hefty bill at the end of the tax year.
Frequently asked questions
Why do I have more than one tax code?
If you have more than one job or pension, you’ll have a tax code for each one. Your personal allowance is applied to your main source of income, so if you use it up you may end up paying tax on all of your second income.
What’s a personal allowance?
This is the amount of money from your salary that you don’t have to pay tax on. The standard personal allowance is currently £12,570 – so if you earn more than this in a year, you’ll only be taxed on the amount above this threshold.
Do I have to pay tax on everything I earn?
You don’t pay tax on your personal allowance and other tax-free allowances, e.g. pension contributions and interest payments on loans.
You might also be eligible to claim income tax relief for maintenance payments, or business expenses if you’re self-employed.
Will work expenses affect my tax code?
If you pay for job-related expenses out of your own pocket, HMRC might reflect this in your tax code. You can also claim tax relief through a self-assessment tax return.
What is a PAYE coding notice?
This is a detailed breakdown of all your tax allowances and deductions, which HMRC use to work out your tax code. It gives you a chance to make sure your details are correct, so you pay the right amount of tax. You might receive a PAYE (Pay As You Earn) coding notice when your tax code is updated.
What if I’m self-employed?
If you’re self-employed, you’ll pay income tax on your business profits – you can work this out by taking your business expenses from your income. Your standard personal allowance and tax rates are the same as employed workers, but you’ll need to complete a self-assessment tax return – your income tax won’t be deducted from your pay straightaway.
