PAYE Tax Code Guide UK 2025

What Is a PAYE Tax Code?

A PAYE (Pay As You Earn) tax code is an alphanumeric code issued by HMRC that tells your employer or pension provider exactly how much income tax to deduct from each pay packet. Without a valid tax code, your employer cannot calculate the correct amount of tax to withhold.

Your tax code is made up of two parts: a number and a letter (or letters). The number tells your employer how much tax-free income you are entitled to in the tax year, while the letter indicates why you have that amount of tax-free income and how the tax should be calculated.

For the 2025/26 tax year, the most common tax code is 1257L, used by the majority of UK employees and pensioners with a single job and the standard personal allowance of £12,570.

How to Read Your PAYE Tax Code

Reading your tax code is straightforward once you know the rules. Here is a step-by-step breakdown:

Complete Guide to Tax Code Letters

Below is a comprehensive explanation of every tax code letter used by HMRC in 2025/26:

The Most Common Code: 1257L Explained

Code 1257L is used by approximately 85% of UK PAYE taxpayers. Here is exactly how it works in practice:

• Annual tax-free income: £12,570 (1257 × 10)
• Monthly tax-free income: £1,047.50 (£12,570 ÷ 12)
• Weekly tax-free income: £241.73 (£12,570 ÷ 52)
• Basic rate (20%) applies on income from £12,571 to £50,270
• Higher rate (40%) applies on income from £50,271 to £125,140
• Additional rate (45%) applies on income above £125,140

If your salary is £35,000 per year, your employer will:

1. Calculate your monthly gross pay: £35,000 ÷ 12 = £2,916.67
2. Deduct monthly tax-free allowance: £2,916.67 - £1,047.50 = £1,869.17 taxable
3. Apply 20% basic rate: £1,869.17 × 20% = £373.83 tax per month

Marriage Allowance Codes: M and N

The Marriage Allowance lets a lower-earning spouse transfer 10% of their personal allowance (£1,257 in 2025/26) to their higher-earning partner, saving up to £251 in tax per year.

Code M is used by the person receiving the transferred allowance. Their code will be 1383M (1257 + 126, rounded). This means their tax-free income increases to £13,830.

Code N is used by the person who has given away their allowance. Their code will be 1131N (1257 - 126). Their tax-free income reduces to £11,310.

To qualify for Marriage Allowance, one spouse must be a non-taxpayer (earning below £12,570) and the other must be a basic rate taxpayer (earning between £12,571 and £50,270). Higher rate taxpayers cannot claim Marriage Allowance.

Emergency Tax Codes: W1 and M1

The suffixes W1 (week 1) and M1 (month 1) indicate that your tax is calculated on a non-cumulative basis. This is sometimes called an emergency code, and it means HMRC does not yet have full information about your income and tax situation for the year.

Under a cumulative code (without W1/M1), your employer looks at how much tax you have paid since 6 April and adjusts your tax each payday to make sure you pay exactly the right amount over the year. Any underpayments or overpayments in one month are automatically corrected in later months.

Under a non-cumulative code (with W1/M1), each pay period is treated independently. Your employer applies one month's or one week's worth of tax-free allowance every payday without looking at what has happened earlier in the year. This prevents corrections from happening automatically.

K Tax Codes: When You Owe HMRC

A K code is essentially the reverse of a normal code. Instead of giving you tax-free income, the code adds to your taxable income. K codes arise when you have income or benefits that need to be taxed but cannot be collected through self-assessment.

Common reasons for a K code include:

• Underpayment of tax from a previous year being collected through your salary
• Company car or fuel benefits that exceed your personal allowance
• Taxable state benefits such as the State Pension that push your income over the allowance threshold
• Medical insurance, private healthcare, or other employment benefits

How K codes work: If your code is K497, HMRC adds £4,970 to your taxable income. So if your salary is £25,000, your employer treats your taxable income as £29,970 and deducts tax accordingly. However, there is a legal maximum: the tax deducted under a K code cannot exceed 50% of your gross pay in any single pay period.

How HMRC Sets Your Tax Code

HMRC calculates your tax code using information from multiple sources throughout the year:

• Your employer submits real-time payroll information (RTI) to HMRC every payday
• Self-assessment returns you file update your income details
• DWP reports state benefit and state pension amounts
• Banks and building societies report interest income
• HMRC's own systems track company benefits, underpayments, and adjustments

When HMRC calculates your code, they start with the standard personal allowance (£12,570) and then add or subtract amounts depending on your personal circumstances. For example, they add Marriage Allowance received and subtract the taxable value of company benefits like a car, fuel, or private medical insurance.

HMRC sends you a P2 Tax Code Notice (also called a PAYE Coding Notice) whenever your code changes. This letter explains exactly why your code has changed and what deductions or additions have been made. You should check this carefully every year.

Why Your Tax Code Changes

Your PAYE tax code can change at any time during the tax year for a number of reasons:

• Starting a new job (particularly without a P45)
• Receiving a pay rise or changing working hours
• Starting or stopping receiving company benefits
• Claiming or no longer claiming Marriage Allowance
• HMRC discovering an underpayment from a previous year
• Changes to the level of state pension you receive
• Becoming entitled to the Blind Person's Allowance (adds £3,070 in 2025/26)
• Having income from savings, dividends, or self-employment
• Moving to or from Scotland or Wales

HMRC typically updates codes in real time via the RTI system, notifying employers electronically. However, the system is not perfect, and errors do occur. It is always worth checking your code proactively.

Checking and Fixing Your Tax Code

There are several ways to find and verify your current tax code:

• Your payslip: Your tax code is printed on every payslip. Check it against what HMRC has on record.
• P60: Your employer gives you a P60 at the end of each tax year (by 31 May) showing your final code.
• P45: Given to you when you leave a job, shows your code at time of leaving.
• Personal Tax Account: The HMRC online portal at gov.uk lets you view your current code, see a full breakdown, and update your details.
• HMRC by phone: Call 0300 200 3300 (Monday to Friday, 8am to 6pm) if you prefer to speak to someone.

If you believe your code is wrong, do not wait. Contact HMRC immediately. Common errors include company car benefits calculated on outdated values, stale underpayments that have already been repaid, and incorrect state benefit amounts. HMRC will issue a corrected code and any overpaid tax will be refunded, usually through your payslip.

Tax Codes for Multiple Jobs

If you have more than one job, HMRC allocates your personal allowance to your main job. Your secondary jobs typically receive a BR (basic rate, 20%) or D0 (higher rate, 40%) code, meaning all income from those jobs is taxed with no tax-free allowance.

You can ask HMRC to split your allowance between jobs if appropriate. For example, if your main job only earns £8,000 per year, you may want to allocate some of your remaining unused allowance (£4,570) to a second job to reduce the tax deducted there.

To request a split allowance, contact HMRC and explain your situation. They will issue different codes to each employer accordingly.

Underpayment Collection via Tax Code

If HMRC discovers that you have underpaid tax in a previous year and the amount is less than £3,000, they will usually collect it by adjusting your PAYE code for the following year. For example, if you owe £500 from 2024/25, your 2025/26 code might be reduced so that you pay an extra £500 in tax throughout the year.

HMRC will notify you of this via a P2 Coding Notice. The notice will show:

• The amount underpaid in previous years
• How it is being deducted (usually spread over 12 months)
• What your new code number is as a result

If the underpayment exceeds £3,000, HMRC will usually ask you to pay it directly rather than collecting it through your code. For amounts over £30,000, you may need to negotiate a payment plan.