What Does Your Tax Code Mean? The Complete Breakdown

Your tax code may look like a random mix of letters and numbers on your pay stub, but it’s really a clear message to your employer about how much tax to take out of your pay.

Knowing what those symbols mean can help you find mistakes, make sure you’re paying the right amount of tax, and maybe even save you money. Let’s go over everything you need to know about UK tax codes.

The Basics: How Tax Codes Work

Most of the time, a tax code has a few numbers followed by one or more letters. The numbers show your tax-free Personal Allowance, which is the most money you can make without having to pay income tax. The letters explain your situation and how it affects your allowance.

The standard Personal Allowance for the tax year 2024/25 is £12,570. This means that most people can make this much money without having to pay income tax. Your tax code turns this allowance into a form that your employer’s payroll system can use to figure out how much tax to take out of your paycheck each week or month.

Figuring Out the Numbers

Most of the time, the number in your tax code is your Personal Allowance with the last digit taken off. If your Personal Allowance is £12,570, your tax code would be 1257. This easier number helps payroll systems figure out how much money you don’t have to pay taxes on each pay period.

About the Letters

The letter in your tax code tells you a lot about your tax situation. These are the most common letters:

L is the most common code letter. It stands for the standard Personal Allowance. If you see 1257L, it means you’re getting the full Personal Allowance with no changes.

M means that you got 10% of your partner’s Personal Allowance through Marriage Allowance.

N shows that you’ve given your partner 10% of your Personal Allowance. Your tax-free amount goes down by the same amount.

T Your tax code includes other calculations to work out your Personal Allowance

K You have income that you are not paying tax on which is more than your Personal Allowance

BR stands for Basic Rate, which means that all of your income from this source is taxed at 20%.

0T means you don’t get a Personal Allowance, but your income is taxed in the usual way, unlike BR. If you’ve spent all of your allowance on something else or if HMRC is looking into your taxes, this might apply.

NT means that no tax should be taken out. This unusual code only applies in certain situations, like when you don’t have to pay UK income tax.

Tax Codes for Emergencies

You might see numbers with W1, M1, or X next to them. These are emergency tax codes that figure out your tax based only on what you’ve made in the current pay period, without taking into account what you’ve made or paid earlier in the tax year.

Emergency codes are short-term solutions that your employer uses when they don’t have all the information they need about your situation. This could be because you’ve just started a new job and haven’t given them a P45 yet, or because HMRC hasn’t processed your information yet. You might pay too much or too little tax while on an emergency code, but this will be fixed once your correct code is sent to you.

Special Situations

There are times when certain changes to the tax code happen. You might have different codes if you’re under 18 or a student who works part-time. Scottish taxpayers have a code that starts with a S (like S1257L) because Scotland has different income tax rates and bands. Welsh taxpayers also have a C prefix.

Your code will change if you get the Marriage Allowance, claim tax breaks on professional subscriptions, or get company benefits like a car or health insurance. If you have more than one job or pension, you probably have different codes for each source of income so that you don’t pay tax on your Personal Allowance twice.

What Your Tax Code Means

If you have the wrong tax code, you could end up paying too much tax all year, which is like giving HMRC an interest-free loan. Get in touch with HMRC directly if something seems off. If necessary, they can look into it and issue a new code.

Whenever you start a new job, get company benefits, get a big raise, or start getting a pension, you should check your code. Even small mistakes can add up to big overpayments or underpayments over the course of a tax year.