How to understand tax codes in the UK

11/06/2025

Understanding your tax code is essential to ensuring you’re paying the correct amount of income tax. Tax codes, issued by HMRC, determine how much tax is deducted from your salary before you receive it. But what do these numbers and letters actually mean? Here’s a simple guide to help you decode your tax code.

What is a tax code?

A tax code is a combination of numbers and letters assigned by HMRC to indicate how much of your income is tax-free and how much is taxable. Employers and pension providers use this code to calculate the tax deducted from your earnings under the PAYE (Pay As You Earn) system.

Breaking down a tax code

A standard UK tax code consists of a number followed by a letter. For example, 1257L is the most common tax code for many UK employees.

Numbers in a tax code

The number represents your tax-free Personal Allowance. To determine the actual allowance, multiply the number by 10. For example:

1257L means you have a Personal Allowance of £12,570 before income tax applies.
If the number is lower, it indicates a reduced allowance due to factors such as untaxed income or benefits.

Letters in a tax code

The letter provides additional information about your tax status. Here are some common ones:

L – Standard Personal Allowance.
M – Marriage Allowance (you’ve received a portion of your partner’s allowance).
N – Marriage Allowance (you’ve transferred part of your allowance to your partner).
T – Other adjustments needed, often due to multiple sources of income or benefits.
K – You have taxable income not covered by your Personal Allowance (e.g., company benefits or unpaid tax from previous years).
BR – Basic Rate tax (20%) applies to all earnings (used for second jobs or pensions where no allowance is applied).
D0 – Higher Rate tax (40%) applies to all earnings (typically for a second job or pension).
D1 – Additional Rate tax (45%) applies to all earnings.
NT – No tax is deducted (only used in special cases like freelancers working abroad).

Why your tax code might change

Your tax code can change due to various reasons, including:

A pay rise or a new job.
Receiving benefits such as a company car.
Claiming marriage allowance.
Changes in tax legislation.
Adjustments for underpaid or overpaid tax from previous years.

Checking and updating your tax code

To ensure your tax code is correct:

Check your payslip – your tax code is usually listed there.
Use HMRC’s online tool to verify your tax code.
Contact HMRC if you believe your tax code is incorrect.

Need help?

Understanding tax codes can be confusing, but getting them right is crucial to avoid overpaying or underpaying tax. If you’re unsure about your tax code or need advice on tax planning, JW Hinks is here to help. Get in touch with our expert team today!