UK Tax Code Explained
By Mustafa Bilgic (MB) • Last updated: February 2026 • 12 min read
Contents
What Is a Tax Code?
Your tax code is a combination of numbers and letters that HMRC (His Majesty's Revenue and Customs) sends to your employer or pension provider. It tells them how much Income Tax to deduct from your wages or pension before you receive your money — this system is called PAYE (Pay As You Earn).
Most people in the UK who are employed (rather than self-employed) have their tax collected through PAYE. Your employer does not decide your tax code — HMRC does. Your employer is obliged to use the code HMRC instructs, even if they think it is wrong. If your code is wrong, you must contact HMRC directly.
How a Tax Code Is Made Up
A tax code typically consists of a number followed by a letter (e.g., 1257L), though some codes are just letters (BR, D0, NT). Here is how to decode them:
The number represents your tax-free income in pounds, divided by 10. So 1257 means £12,570 of tax-free allowance (£12,570 divided by 10 = 1,257, rounded down). This is usually your Personal Allowance.
The letter tells your employer which tax table to apply and provides information about your circumstances (standard allowance, higher rate, Scottish rates, etc.).
How the Number Translates to Your Allowance
| Tax Code Number | Tax-Free Allowance (multiply by 10) | Common Reason |
|---|---|---|
| 1257 | £12,570 | Standard personal allowance 2025/26 |
| 1260 | £12,600 | Marriage Allowance transferred from spouse |
| 1207 | £12,070 | Marriage Allowance transferred to spouse (reduced by £500) |
| 1100 | £11,000 | Personal allowance reduced (e.g., outstanding tax debt) |
| 0T | £0 | No personal allowance applied |
1257L: The Most Common Tax Code for 2025/26
The tax code 1257L is used by the majority of UK employees on a single employment with no unusual circumstances. It means:
- You receive the standard Personal Allowance of £12,570 per year tax-free
- The letter L confirms you are entitled to the standard allowance
- Income above £12,570 is taxed at 20% (basic rate), 40% (higher rate), or 45% (additional rate) depending on the total
Example: How 1257L Works on a £35,000 Salary
Annual salary: £35,000
Personal allowance (tax code 1257L): £12,570
Taxable income: £35,000 − £12,570 = £22,430
Tax at 20%: £22,430 × 20% = £4,486 per year
Monthly tax deducted: £4,486 / 12 = £373.83 per month
HMRC updates the personal allowance and therefore the standard tax code each tax year in line with Budget announcements. The allowance has been frozen at £12,570 since 2021/22 and will remain at this level until at least April 2028 under the current government's plans.
What the Letters in Tax Codes Mean
| Letter | Meaning | Common Scenario |
|---|---|---|
| L | Standard Personal Allowance | Most employees — standard code |
| M | Marriage Allowance received (10% added) | Recipient of partner's unused allowance |
| N | Marriage Allowance transferred (10% less) | Partner who transferred their allowance |
| T | Calculation includes other items HMRC must review | Complex tax situations |
| S | Scottish rate taxpayer | Scotland residents |
| C | Welsh (Cymru) rate taxpayer | Wales residents |
| K | Negative allowance (more tax due than personal allowance) | Large benefits-in-kind, underpaid tax |
| BR | All income taxed at basic rate (20%) | Second job, no allowance available |
| D0 | All income taxed at higher rate (40%) | Second job for higher rate taxpayers |
| D1 | All income taxed at additional rate (45%) | Second job for additional rate taxpayers |
| NT | No tax deducted | Non-resident, specific exempt payments |
| 0T | No personal allowance, taxed at appropriate rates | Income above £125,140, new job no P45 |
Common Tax Codes Explained in Detail
1257L Standard Code
The default code for most employees in England and Northern Ireland. Gives full Personal Allowance of £12,570. Used when HMRC has no reason to apply a different code.
BR Basic Rate — No Allowance
All income from this employment is taxed at 20% with no personal allowance deducted first. Commonly applied to a second job (where your allowance is used against your main job) or when you start a new job and HMRC has not updated your code yet. If applied to your main and only job, contact HMRC immediately — you will be overpaying tax significantly.
Example: BR vs 1257L on a £25,000 salary
With 1257L: Tax = (£25,000 − £12,570) × 20% = £2,486/year
With BR: Tax = £25,000 × 20% = £5,000/year
Overpayment if BR applied incorrectly: £2,514 per year
D0 Higher Rate — No Allowance
All income from this employment is taxed at the higher rate of 40%. Used for second jobs when the employee already uses the basic rate band in their main employment. D1 applies the 45% additional rate in the same way.
K Codes — Negative Allowance
A K code means you have more income that needs to be taxed than your Personal Allowance can absorb. The K followed by a number works in reverse — instead of adding the number (multiplied by 10) to your allowance, it is subtracted. Common reasons for K codes include:
- Receiving a company car, private medical insurance, or other taxable benefits-in-kind
- Underpaid tax from a previous year being collected through PAYE
- Taxable State Pension or other untaxed income that exceeds your allowance
Example: K497 Explained
K497 means a deduction of £4,970 from your standard allowance.
Standard personal allowance: £12,570
K497 reduction: £4,970
Effective tax-free amount: £12,570 − £4,970 = £7,600
Wait — if the K code creates a negative result, HMRC adds the excess to your taxable income instead. For example, a K1000 code means an additional £10,000 is added to your taxable income.
0T Zero Personal Allowance
No personal allowance is given. All income is taxed at the appropriate rate (20%, 40%, 45%) depending on how much you earn. Applied when:
- Your income exceeds £125,140 (where the Personal Allowance tapers to zero)
- You start a new job without a P45 and HMRC has insufficient information
- All your personal allowance has been used against another income source
NT No Tax
No tax is deducted at all. Used for non-UK residents on certain payments, or when a specific exemption applies. Very uncommon for regular employees.
Emergency Tax Codes (W1, M1, X)
Emergency tax codes are applied when HMRC does not have enough information to give you the correct tax code — most commonly when you start a new job without providing a P45 (which you get from your old employer when you leave).
| Emergency Code | Meaning | What Happens |
|---|---|---|
| 1257L W1 | Week 1 basis (non-cumulative) | Tax calculated on current week's pay only, ignoring year-to-date earnings |
| 1257L M1 | Month 1 basis (non-cumulative) | Tax calculated on current month's pay only, ignoring year-to-date earnings |
| 1257L X | Non-cumulative (any pay period) | Same as above but applies to any pay period |
HMRC typically resolves emergency tax codes automatically within 1–3 pay periods once they receive payroll data from your new employer. If your tax code still shows W1 or M1 after 3 months, contact HMRC to request it is updated. Any overpaid tax will be refunded — either through payroll adjustments or via a P800 tax calculation at year end.
Scotland (S Prefix) and Wales (C Prefix)
Scotland and Wales have devolved Income Tax rate-setting powers. If you are a Scottish or Welsh taxpayer, your tax code includes a prefix that tells your employer to apply the appropriate rates.
Scottish Tax Rates 2025/26
| Band | Income Range | Rate |
|---|---|---|
| Starter rate | £12,571–£15,397 | 19% |
| Basic rate | £15,398–£27,491 | 20% |
| Intermediate rate | £27,492–£43,662 | 21% |
| Higher rate | £43,663–£75,000 | 42% |
| Advanced rate | £75,001–£125,140 | 45% |
| Top rate | Above £125,140 | 48% |
Scottish taxpayers pay higher Income Tax rates than the rest of the UK at most income levels above £27,491. The S prefix on a code (e.g., S1257L) ensures Scottish rates are applied.
Welsh Tax Rates 2025/26
Wales currently applies identical rates to England and Northern Ireland (20%, 40%, 45%). The C prefix (e.g., C1257L) identifies Welsh taxpayers but currently makes no difference to the amount of tax paid.
When and Why Tax Codes Change
HMRC issues new tax codes when your tax situation changes. Common reasons your tax code may change include:
| Reason | Typical Effect on Code |
|---|---|
| Annual Budget changes to Personal Allowance | Number part of code changes (e.g., 1257L to 1270L) |
| Starting a new job without P45 | Emergency code (W1/M1) applied temporarily |
| Receiving company benefits (car, health insurance) | Code reduced or K code applied |
| Marriage Allowance transfer | Increased to around 1260M or reduced to around 1207N |
| Underpaid tax from previous year | Code reduced to collect extra tax through PAYE |
| State Pension starts (untaxed income) | Code reduced to tax State Pension through employment income |
| Starting or stopping self-employment | Code adjusted to account for additional income or tax owed |
| Income exceeds £100,000 | Personal allowance tapers, code reduces toward 0T |
| Moving to/from Scotland or Wales | S or C prefix added or removed |
When your tax code changes, HMRC sends you a P2 notice of coding explaining why it has changed and what the new code is. You should check this notice carefully — HMRC can and does make errors.
How to Check Your Tax Code
There are several ways to find your current tax code:
- Your payslip: Your tax code is printed on every payslip, usually in a dedicated field. Look for it near the top alongside your NI number and employee number.
- P60 (End of Year Certificate): Your employer provides this by 31 May each year. It shows your final tax code for the year as well as total tax paid.
- P45: Issued when you leave a job. Shows your tax code at that point and your earnings and tax paid in the tax year to date.
- P2 Notice of Coding: HMRC sends this directly when your code changes. It explains the components of your new code.
- HMRC Personal Tax Account: Visit gov.uk/personal-tax-account. You can view your current and historical codes, manage your tax affairs, and update information.
- HMRC App: Available for iOS and Android. Shows your current tax code and allows basic account management.
- Phone HMRC: Call 0300 200 3300 (Monday to Friday, 8am to 6pm). Have your National Insurance number ready.
How to Correct a Wrong Tax Code
Wrong tax codes are surprisingly common. HMRC estimates that millions of people are on the wrong tax code at any given time, meaning either overpaying or underpaying tax. Common errors include:
- BR applied to a main job instead of a second job
- Company benefits values estimated incorrectly
- Previous tax debt still being collected after it has been settled
- Emergency code not updated after a new job starts
- Marriage Allowance applied to the wrong partner
- State Pension deduction applied incorrectly
Steps to Correct a Wrong Tax Code
- Identify the error. Compare your tax code to what you expect. Check the breakdown in your Personal Tax Account to see what HMRC thinks your income and benefits are.
- Gather evidence. Collect relevant documents — P45, P60, benefit-in-kind statements, any letters from HMRC about your tax position.
- Contact HMRC. Use your Personal Tax Account (online, fastest), the HMRC app, or phone 0300 200 3300. Have your NI number and employer PAYE reference to hand.
- Wait for updated code. HMRC will issue a new coding notice to you and your employer within a few days to 3 weeks. Your employer must implement it from the next payroll run.
- Check your P800. After the end of each tax year, HMRC calculates whether you have overpaid or underpaid tax across all sources. You will receive a P800 tax calculation if any adjustment is needed. Overpayments are refunded by cheque or directly to your bank account.
Reclaiming Overpaid Tax
If you have overpaid tax due to a wrong code, HMRC will usually refund the overpayment through:
- Automatic adjustment through payroll (cumulative code catches up)
- P800 tax calculation letter after year end
- Direct application via your Personal Tax Account (claim a repayment)
You have up to 4 tax years to claim a repayment of overpaid Income Tax from HMRC.
The Personal Allowance Tapering Above £100,000
If your total income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above £100,000. At £125,140, the Personal Allowance is completely withdrawn, creating an effective marginal tax rate of 60% on income between £100,000 and £125,140.
| Total Income | Remaining Personal Allowance | Approximate Tax Code |
|---|---|---|
| £100,000 | £12,570 | 1257L |
| £110,000 | £7,570 | 757L |
| £120,000 | £2,570 | 257L |
| £125,140 | £0 | 0T |
| Above £125,140 | £0 | 0T |