Understanding tax codes and what they really mean on your payslip
Tax codes decide how much income tax you pay, but many people misunderstand them. This article explains how tax codes work, what common codes mean, and how to check if yours is correct.
Understanding tax codes and what they really mean on your payslip
Tax codes decide how much income tax is taken from your wages or pension. Most people see a tax code on their payslip but do not fully understand what it means or how it affects their income. Getting it wrong can result in underpayment or overpayment of tax, sometimes costing hundreds of pounds over time.
This article explains how tax codes work, what common codes mean, how errors happen, how to check your code, and what to do if it is wrong. It is for general informational purposes only and is not financial or legal advice.
What is a tax code?
A tax code is a combination of numbers and letters used by HM Revenue & Customs (HMRC) to tell employers how much income tax to deduct from an employee’s pay through PAYE (Pay As You Earn).
It is designed to reflect your tax-free Personal Allowance, which is the amount you can earn before paying income tax. The most common Personal Allowance is £12,570 (at the time of writing), used for people with standard circumstances.
Source: HMRC — Tax Codes Explained:
https://www.gov.uk/tax-codes
How tax codes are formed
A tax code usually looks like 1257L or 1185L. The number indicates how much tax-free income you are allowed in a year, while the letter shows your tax situation.
Example:
1257L → Personal Allowance £12,570 (drop the last digit).
This is currently the most common tax code for people with one job and no adjustments.
Common tax code letters and what they mean
| Letter | Meaning |
|---|---|
| L | Standard allowance — for most people |
| M | You receive 10% of your partner’s allowance (Marriage Allowance) |
| N | You have transferred 10% of your allowance to your partner |
| T | Your situation requires a manual review by HMRC (adjustments, benefits, income changes) |
| BR | All income taxed at 20% (basic rate), no personal allowance given |
| D0 | All income taxed at 40% (higher rate), no personal allowance |
| D1 | All income taxed at 45% (additional rate), no personal allowance |
| K | You owe tax from other sources or receive taxable benefits, so your tax-free amount is negative |
Source: HMRC — Tax Code Letters:
https://www.gov.uk/employee-tax-codes/letters-in-your-tax-code
Why your tax code may be wrong
Many people are on an incorrect tax code without knowing it. Some common reasons include:
- Starting or leaving a job
- Having more than one job or pension
- Receiving benefits through work (company car, housing, health cover)
- Getting taxable state benefits
- Marriage Allowance transfer
- Underpaid or overpaid tax from previous years
- Emergency tax when starting a job without a P45
Source: HMRC — Income Tax mistakes:
https://www.gov.uk/underpaid-tax
What are emergency tax codes?
Emergency tax codes are temporarily used when HMRC or your employer doesn’t have enough information to issue a proper code. They often end with W1, M1 or X, meaning your allowance is calculated on a weekly or monthly basis instead of yearly.
Emergency codes include:
1257L W11257L M11257L X
While emergency codes usually result in higher deductions, they are temporary and corrected once HMRC gets full information.
Source: HMRC Emergency Tax:
https://www.gov.uk/emergency-tax
How to check if your tax code is correct
You can check your tax code here:
HMRC — Check Your Income Tax Online:
https://www.tax.service.gov.uk/check-income-tax
Things you should check:
- Are you being taxed on emergency code?
- Do you have multiple jobs not reflected in your code?
- Have you claimed Marriage Allowance?
- Have you received benefits like a company car?
- Does your employer have the correct tax code?
What to do if your tax code is wrong
If you believe your tax code is wrong, you can contact HMRC directly.
- Online: https://www.gov.uk/check-income-tax-current-year
- By phone: HMRC Income Tax helpline (listed on gov.uk)
You should have your National Insurance number and recent payslips when you contact them. HMRC might issue a new tax code to your employer, correcting future deductions. If you have overpaid, you may receive a tax rebate.
Can your tax code affect your take-home pay significantly?
Yes. Even a simple mistake—like being put on a BR (Basic Rate) code when you should receive an allowance—can result in hundreds of pounds in extra tax each month. Similarly, people with multiple jobs may accidentally be given two Personal Allowances, resulting in underpayment which HMRC later reclaims.
Understanding your tax code helps you avoid both underpayment and overpayment.
Key things to remember
- Tax codes decide how much income tax is deducted from your pay.
- A wrong code can lead to paying too much or too little tax.
- You should regularly check your code, especially when changing jobs.
- HMRC provides tools to help you confirm your tax code and correct mistakes.
- If you feel something is wrong, contact HMRC or check online using official services.
This article is for general informational and educational purposes only. It does not assess your personal situation. If unsure, contact HMRC directly or speak to a qualified professional.
