In the United Kingdom, tax codes play a crucial role in determining how much Income Tax you pay. Every employee or pensioner who pays tax through the Pay As You Earn (PAYE) system is assigned a tax code by HM Revenue and Customs (HMRC).
Your tax code tells your employer or pension provider how much tax-free income you’re entitled to receive before tax is deducted. In simple terms, it ensures that the right amount of tax is collected from your salary or pension throughout the year.
Understanding your tax code matters, as it can help you identify if you’re paying too much or too little tax, and spot potential errors that could affect your take-home pay.
What Are Tax Codes?
A tax code is a combination of numbers and letters used by HMRC to show how much tax-free income you can earn in a given tax year. It tells your employer or pension provider exactly how much tax to deduct from your wages.
The numbers in your tax code represent your personal allowance — the amount you can earn before paying income tax. For example, the most common tax code, 1257L, means you’re entitled to the standard £12,570 personal allowance for the 2025/26 tax year.
Tax codes can change based on your circumstances, for instance, if you start a new job, receive company benefits, or have more than one source of income. HMRC updates tax codes automatically, but it’s still wise to check your payslip regularly to ensure yours is correct.
Tax Codes in the UK
In the UK, tax codes are issued and managed by HMRC and are applied through the PAYE system. This means your employer deducts tax directly from your salary before you’re paid.
You can find your tax code on:
- Your payslip (usually near your National Insurance number).
- Your P60 or P45 form.
- The HMRC online portal or app.
Tax codes can change at various times, such as when you start a new job, take on a second income, receive company perks like a car or health insurance, or move to a different tax band. If your circumstances change, HMRC may issue a new code to ensure your tax remains accurate.
Most Common Tax Codes in the UK
Here are the tax codes you’re most likely to see on a UK payslip and how they can affect your income:
| Tax Code | Meaning | How It Affects Pay |
| 1257L | standard code for most employees | You get the full £12,570 tax-free allowance before income tax applies. |
| BR | Basic rate (20%) | All income from this job is taxed at 20% no personal allowance is applied to this employment. |
| D0 | Higher rate (40%) | All income is taxed at 40%; usually used for a second job. |
| D1 | Additional rate (45%) | All income is taxed at 45%; this applies to very high earners. |
| NT | No tax | No tax is deducted, often for non-taxable income or specific pensions. |
Example: 1257L vs BR Tax Codes
Let’s say you earn £3,000 per month.
| Tax Code | How It Works | Approx. Tax Deducted | Take-Home Pay |
| 1257L | Standard code: you get your full tax-free allowance (£12,570 per year). | ~£243 | ~£2,757 |
| BR | Basic Rate: All income is taxed at 20%, no allowance applied. | £600 | £2400 |
Scottish (S) and Welsh (C) Tax Code Prefixes
The Welsh Government can set its own rates (but in recent years they have usually aligned closely with the main UK rates.
S prefix (Scottish taxpayer):
If your tax code starts with S (for example, S1257L), it means you live in Scotland and pay Scottish Income Tax.
While your Personal Allowance is the same as the rest of the UK, the tax bands and rates are set by the Scottish Government.
C prefix (Welsh taxpayer):
If your tax code starts with C (for example, C1257L), it means you live in Wales and pay Welsh Income Tax.
The Welsh Government sets its own income tax rates, but HMRC still collects the tax on its behalf.
Emergency Tax Codes (W1 / M1)
If your tax code ends with W1, M1, or sometimes X, it means you’re on an emergency tax code.
This usually happens when HMRC doesn’t yet have all the information it needs about your income or previous job, for example:
- You’ve started a new job and your employer hasn’t received your P45.
- You’ve started working after a break or changed jobs partway through the tax year.
Under an emergency code, you’re taxed only on what you earn in the current pay period, without accounting for earlier earnings. This can mean paying too much tax temporarily.
Once HMRC receives the correct information, your tax code will be updated automatically, and any overpaid tax will be refunded through your payslip or at the end of the tax year.
K Codes
A K tax code means you have a negative tax-free Personal Allowance.
In other words, you owe tax on money or benefits from a previous year, or you receive certain taxable benefits (like a company car or medical insurance) that exceed your Personal Allowance.
HMRC uses a K code to add the extra taxable amount to your income, so you pay the tax owed gradually through your wages or pension.
It’s important to note that a K code does not mean you’re in trouble it simply ensures the correct amount of tax is collected. Your employer can’t deduct more than half your gross pay in any single pay period.
How Do Tax Codes Work?
Your tax code helps HMRC and your employer calculate how much income tax should be taken from your pay. The code combines numbers and letters, each with a specific meaning.
- Numbers: These show your tax-free personal allowance divided by 10. For example, if your allowance is £12,570, the number part is 1257.
- Letters: These represent your tax situation. Common ones include:
L – Standard personal allowance.
M – You’ve received a portion of your partner’s allowance (Marriage Allowance).
N – You’ve transferred part of your allowance to your partner.
T – Other calculations apply (e.g., reduced allowance).
BR – All income is taxed at the basic rate (20%).
Employers use your tax code through the PAYE system to automatically calculate and deduct the correct amount of tax. If HMRC doesn’t yet have your full employment details, such as when you start a new job, you might be placed on an emergency tax code (W1 or M1) temporarily until your information is updated.
Tax Code for Self-Employed in the UK
If you’re self-employed, you don’t have a tax code in the same way employees do. Tax codes apply only to PAYE (Pay As You Earn) workers, where employers deduct tax automatically.
Instead, self-employed individuals calculate and pay their taxes through the Self Assessment system. You’ll need to declare income, expenses, and profits once a year to HMRC, which then determines how much tax and National Insurance you owe.
Tax Rate of the Tax Code
Each tax code links directly to a specific tax rate and income band. Here’s how they align:
| Tax Band | Tax Rate | Income Range (2025/26) |
| Personal Allowance | 0% | Up to £12,570 |
| Basic Rate (BR) | 20% | £12,571 – £50,270 |
| Higher Rate (D0) | 40% | £50,271 – £125,140 |
| Additional Rate (D1) | 45% | Over £125,140 |
Summary
UK tax codes determine how much income tax you pay through the PAYE system. Each code, made up of numbers and letters, shows your tax-free allowance and personal circumstances. The standard code 1257L applies to most employees, while others like BR, D0, and D1 indicate higher tax rates or multiple jobs. Self-employed individuals don’t use tax codes; they file taxes through Self Assessment. Knowing your tax code helps ensure you’re paying the right amount and not losing money to incorrect deductions.
FAQs
1. How do I find my tax code?
You can find your tax code on your payslip, P45, P60, or in your HMRC online account. It’s usually listed near your National Insurance number.
2. What if my tax code is wrong?
Contact HMRC immediately if you think your tax code is incorrect. They’ll review your details and issue an updated code to your employer.
3. How often do tax codes change?
Tax codes can change annually at the start of a new tax year or when your income, job, or benefits change during the year.
4. Do pensioners have different tax codes?
Yes, pensioners receive tax codes based on their state pension, private pensions, and any other income sources to ensure correct tax deductions.
5. Can I change my tax code myself?
No, only HMRC can change your tax code, but you can update your information through your online account to trigger a review.
