Your tax code plays a vital role in determining how much income tax is deducted from your salary or pension. It tells your employer or pension provider how much tax-free income you’re entitled to before you start paying tax. If you’re unsure about what your tax code means or why it changes, this guide will explain everything you need to know about understanding and managing your tax code.

1. What is a Tax Code?

A tax code is a series of numbers and letters used by HM Revenue and Customs (HMRC) to calculate how much income tax should be deducted from your wages, salary, or pension. Your tax code takes into account your personal allowance (the amount of income you can earn before paying tax), as well as any other tax-related circumstances, such as benefits or unpaid tax from previous years.

Each tax code corresponds to a set amount of tax-free income. The number in the tax code reflects the amount of tax-free income you're entitled to in a given tax year. The letters show how your tax-free allowance is adjusted based on your circumstances.

2. How to Read Your Tax Code

Tax codes are usually made up of numbers and letters. Here's how to break down the code:

The Number

The number in your tax code represents the amount of income you can earn tax-free in a year. For example:

A tax code of 1257L means that you can earn £12,570 before paying tax in the current tax year.

The number is typically a multiple of 10, representing your personal allowance.

The Letter

The letter(s) at the end of your tax code show if there are adjustments to your allowance based on your personal circumstances. Common letters include:

L: This is the most common tax code. It means you're entitled to the standard personal allowance (£12,570 for the 2023/24 tax year).

M: This indicates you have received a Marriage Allowance. If your spouse or civil partner is transferring part of their personal allowance to you, you’ll see an M in your code.

N: This indicates your spouse or civil partner has transferred part of their personal allowance to you (the reverse of the M code).

T: A T tax code means that there are complex circumstances affecting your personal allowance, such as adjustments for benefits or taxable income from other sources.

S: This code applies to people who live in Scotland. It’s part of the Scottish income tax system, which sets different rates and bands for income tax.

C: This applies to people who live in Wales, as Wales has its own income tax rates and bands.

BR, D0, D1: These codes are used when you are taxed at a flat rate, usually if you have multiple income sources or receive income from pensions that do not have tax already deducted.

Example: 1257L

12 = The first two digits represent £12,000 of tax-free income.

57 = The remainder (57) represents £570 in tax-free income.

L = You are entitled to the standard personal allowance.

3. How Tax Codes Are Set

Your tax code is primarily determined by HMRC based on the following factors:

Your Personal Allowance: For most taxpayers, the personal allowance is £12,570, but it can be higher or lower depending on your specific circumstances (e.g., marriage allowance, blindness, etc.).

Other Income: If you receive income from other sources (e.g., rental income, benefits), it may affect your tax code.

Pension Contributions: If you're contributing to a pension scheme, it may be factored into your tax code to ensure the correct amount of tax is paid.

Benefits: If you receive taxable benefits (such as company cars, private health insurance, etc.), they could also adjust your tax code.

Unpaid Tax from Previous Years: If you owe tax from previous years, HMRC might adjust your code to recover that tax over time.

Marriage Allowance: If you are married or in a civil partnership, and your partner is transferring some of their personal allowance to you, your tax code will reflect this.

4. Common Tax Codes and What They Mean

Here are some of the most common tax codes and what they signify:

1257L: This is the standard tax code for most people in the 2023/24 tax year. It means you’re entitled to the personal allowance of £12,570.

BR: This code is used if your income is taxed at a flat rate of 20%, for example, if you have multiple jobs or pensions and one of them isn’t entitled to a personal allowance.

D0: This code is used if your income is taxed at the higher rate of 40% and you don’t receive a personal allowance.

D1: This is used if your income is taxed at the additional rate of 45% and you don’t receive a personal allowance.

0T: This code is used when you don’t have a personal allowance, and you are taxed on all your income at the appropriate rate (this could be due to unpaid tax from previous years or multiple income sources).

M and N: These codes are used when the Marriage Allowance is involved, transferring part of the personal allowance between spouses or civil partners.

5. What If Your Tax Code is Wrong?

It’s important to regularly check your tax code to make sure it’s accurate. A mistake in your tax code can result in you paying too much or too little tax. If you think your tax code is incorrect, here’s what to do:

Check Your Payslip: Review your payslip and make sure the tax code matches the one on your HMRC notice.

Contact HMRC: If your tax code is wrong, you can contact HMRC to request a correction. This may happen if your personal circumstances change (e.g., you receive a new job or lose a benefit).

Use Your Personal Tax Account: You can log in to your personal tax account on the HMRC website to view and update your tax code.

Look Out for P800 Notices: HMRC will send you a P800 notice if you’ve overpaid or underpaid tax. It will detail how your tax code should be adjusted.

6. Why Your Tax Code Might Change

There are several reasons why your tax code may change during the year, including:

Changing Your Job: If you start a new job and your new employer doesn’t have details of your previous earnings, they may use a default tax code until HMRC updates them.

Changes in Income: If your income increases or decreases significantly, HMRC might adjust your tax code to reflect the new tax-free allowance.

Receiving or Losing Benefits: If you start or stop receiving taxable benefits, such as a company car or health insurance, this can affect your tax code.

Marriage Allowance: If you or your partner becomes eligible for Marriage Allowance, it may impact your tax code.

7. What to Do if You’re Paying Too Much or Too Little Tax

If your tax code is wrong, you might be paying too much or too little tax:

Paying Too Much Tax: If you believe you're paying too much tax, you can apply for a tax refund from HMRC. They will review your tax code and adjust it if necessary.

Paying Too Little Tax: If you’re paying too little tax, HMRC may send you a bill for the underpaid tax. In some cases, they may adjust your tax code to collect the owed tax over the next year.

8. Conclusion



Your tax code is a key component of how income tax is deducted from your salary or pension. Understanding your tax code can help ensure you pay the correct amount of tax and avoid overpaying or underpaying. If you believe your tax code is incorrect, don’t hesitate to contact HMRC or consult with an accountant to get it sorted out.

By keeping an eye on your tax code, you can manage your tax liability more effectively and avoid potential issues with HMRC. If in doubt, seeking professional advice is always a smart way to stay on top of your tax obligations.