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What is Tax Code?

Your tax code tells your employer how much tax-free income you can have before they start deducting tax from your pay.

Current Rate (2025/26)

1257L is the most common (£12,570 tax-free)

Example

Tax code 1257L means £12,570 ÷ 12 = £1,047.50 tax-free each month.

Key Dates

Check your tax code when starting a new job or if circumstances change

How Tax Code Works in Practice

A tax code is HMRC's way of telling your employer or pension provider how much income you can receive before tax is deducted. The code is made up of a number and a letter. The number represents your tax-free allowance -- multiply it by 10 to get the actual amount. So 1257L means £12,570 of tax-free income. The letter indicates your specific circumstances.

The most common tax code is 1257L, which reflects the standard Personal Allowance of £12,570 for 2025/26. However, your code may differ if you have untaxed income that needs collecting through PAYE, benefits in kind, or if you owe tax from a previous year. For example, if you have a company car worth £3,000 in BIK, your code might be 957L (£12,570 minus £3,000 = £9,570, shown as 957).

Common letter suffixes include: L (standard Personal Allowance), M (Marriage Allowance recipient -- extra 10% of partner's allowance), N (Marriage Allowance transferor), T (HMRC needs to review items in the code), K (deductions exceed allowances -- more tax is due), BR (all income taxed at basic rate -- often for a second job), D0 (all income taxed at higher rate), and NT (no tax to be deducted).

A K code is unusual but important. It means your deductions (benefits in kind, state pension collected through PAYE, tax owed from previous years) exceed your Personal Allowance. The number after K is the excess, which is added to your taxable pay. For example, K500 means £5,000 is added to your taxable pay. HMRC limits the tax deducted under a K code to 50% of your pay in any pay period.

Step by Step

HMRC issues tax codes based on information they hold about you. When you start a new job, your employer receives your code via HMRC's PAYE system. Each pay period, your employer calculates how much tax-free income you are entitled to (your annual allowance divided by the number of pay periods), deducts this from your gross pay, and applies the appropriate tax rate to the remainder.

The system operates on a cumulative basis for most codes. This means if you start a job partway through the year, the system accounts for the allowance you have already accumulated but not used. If you have been unemployed for several months, you may get a larger tax-free amount in your first payslip to account for the unused allowance, potentially resulting in a tax refund.

HMRC can change your tax code during the year if your circumstances change -- for example, if you start receiving a benefit in kind or if you notify them of additional income. You will receive a P2 coding notice explaining the change. Your employer receives the new code electronically and adjusts your pay accordingly.

Practical Tips

  • Check your tax code every April when the new tax year starts -- HMRC often gets it wrong, especially if your circumstances changed mid-year
  • If you have benefits in kind, verify the amounts in your tax code match the actual P11D values your employer reports
  • When starting a new job, provide your P45 quickly to avoid emergency tax codes and incorrect deductions
  • Use the HMRC app or Personal Tax Account online to view and challenge your tax code at any time

Common Mistakes to Avoid

  • Ignoring an incorrect tax code and overpaying tax for months -- always check your coding notice when it arrives
  • Not informing HMRC when you stop receiving a benefit in kind, resulting in too much tax being deducted
  • Using the emergency tax code for too long when starting a new job -- chase your P45 or contact HMRC to get the correct code applied
  • Assuming a BR code on a second job is wrong -- if you use your full Personal Allowance against your main job, your second job is correctly taxed at the basic rate from the first pound

Frequently Asked Questions

What does the 'L' in 1257L mean?

The L suffix indicates you are entitled to the standard Personal Allowance. It is the most common suffix and simply means there are no special adjustments to your tax code.

I am on an emergency tax code -- what should I do?

Emergency codes (typically 1257L M1 or 1257L W1) mean HMRC is taxing you on a non-cumulative basis. Provide your P45 from your previous employer to your new employer. If you do not have one, contact HMRC to get your code corrected. Any overpaid tax will be refunded.

Can I have different tax codes for different jobs?

Yes, if you have multiple jobs or pensions, HMRC assigns a separate tax code to each. Your Personal Allowance is usually allocated to your main source of income, while other sources may use BR (basic rate) or D0 (higher rate) codes.

How do I check if my tax code is correct?

Log into your Personal Tax Account on GOV.UK to see your current tax code and what it is based on. Check that the allowances and deductions match your actual circumstances. If anything is wrong, contact HMRC through the online service or by phone.

What happens if my tax code is wrong all year?

If you have overpaid, HMRC will usually issue a refund automatically via a P800 calculation after the tax year ends. If you have underpaid, HMRC may collect the shortfall by adjusting your tax code for the following year or by requesting direct payment.

Source: HMRC PAYE Manual (PAYE70000+): https://www.gov.uk/hmrc-internal-manuals/paye-manual and tax code checker: https://www.gov.uk/tax-codes

Related Terms

PAYE (Pay As You Earn)

PAYE is the system employers use to deduct Income Tax and National Insurance from employee wages before paying them.

Personal Allowance

The Personal Allowance is the amount of income you can earn each year before paying Income Tax.

Income Tax

Income Tax is the tax paid on most types of income - salary, dividends, rental income, self-employment profits.

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