Understanding Your Tax Code
If you’ve ever looked at your payslip and seen a jumble of numbers and letters like 1257L, you’ve seen your tax code—and while it might look cryptic, understanding it can make a big difference to your finances. Let’s break it down so you know exactly what it means, how it’s calculated, and how to fix it if something’s wrong.
What Is a Tax Code?
Your tax code is issued by HMRC (HM Revenue & Customs) and tells your employer how much Income Tax to deduct from your salary.
Your tax code is based on several things:
Your Personal Allowance
Whether you have more than one job
Any taxable employee benefits (e.g. company car, health insurance)
Unpaid taxes from previous years
Other income not taxed at source (like rental income)
You can usually find your tax code in any of the following places:
Your monthly payslip
Your P45 (when you leave a job)
Your P60 (issued at the end of the tax year)
The HMRC app or your online Personal Tax Account
Why Does your Tax Code Matter?
Because the wrong tax code = the wrong amount of tax.
If your tax code is too low, HMRC will deduct too much tax, and you may be owed a refund.
If it’s too high, you won’t pay enough—and could face a bill later.
Regularly checking your tax code is one of the quickest personal finance wins. It only takes a few minutes, and it could save you hundreds of pounds each year.
Common Tax Codes Explained
Here’s a breakdown of the most common UK tax codes for the 2024/25 tax year:
The most common UK tax code in 2024/25 is:
1257L
The “1257” means you’re entitled to the standard Personal Allowance of £12,570.
The “L” means you’re eligible for the basic tax-free allowance.
Letters in your tax code refer to your situation and how it affects your Personal Allowance. Below is a table to explain what all the possible letters mean:
| Letter | What it Means |
|---|---|
| L | You’re entitled to the standard tax-free Personal Allowance |
| M | You’ve received a transfer of 10% of your partner’s Personal Allowance (Marriage Allowance) |
| N | You’ve transferred 10% of your Personal Allowance to your partner (Marriage Allowance) |
| T | Your tax code includes other calculations to work out your Personal Allowance |
| 0T | Your Personal Allowance has been used up, or your employer lacks the info to assign a tax code |
| BR | All income from this job or pension is taxed at the basic rate (often if you have more than one job/pension) |
| D0 | All income taxed at the higher rate (multiple jobs/pensions) |
| D1 | All income taxed at the additional rate (multiple jobs/pensions) |
| NT | You’re not paying any tax on this income |
| S | Your income/pension is taxed using Scottish tax rates |
| S0T | Scottish Personal Allowance used up or missing employer info |
| SBR | All income taxed at the basic Scottish rate (multiple jobs/pensions) |
| SD0 | All income taxed at the intermediate Scottish rate |
| SD1 | All income taxed at the higher Scottish rate |
| SD2 | All income taxed at the advanced Scottish rate |
| SD3 | All income taxed at the top Scottish rate |
| C | Your income/pension is taxed using Welsh tax rates |
| C0T | Welsh Personal Allowance used up or missing employer info |
| CBR | All income taxed at the basic Welsh rate |
| CD0 | All income taxed at the higher Welsh rate |
| CD1 | All income taxed at the additional Welsh rate |
| W1 / M1 / X | These are emergency tax codes |
| K | You have untaxed income worth more than your tax-free allowance (e.g. unpaid tax from previous years or taxable benefits) |
How Is Your Tax Code Worked Out?
Let’s say:
You earn £30,000/year
You’re entitled to the full £12,570 Personal Allowance
You have no additional income or taxable benefits
Your tax-free allowance is spread across the year, and your tax code will likely be 1257L.
Example with Adjustments:
Now suppose you have a company car with a taxable benefit of £3,000:
Your adjusted Personal Allowance = £12,570 – £3,000 = £9,570
Your tax code becomes 957L
So, the more benefits or untaxed income you have, the lower your allowance, and the lower your number.
How to Fix or Check Your Tax Code
If you are not sure what your tax code means you can use HMRC’s tax code checker here to check it.
If you think your tax code is wrong:
Log into your HMRC Personal Tax Account
Go to the HMRC website and sign in with your Government Gateway ID and password.
Review your income, tax paid, and tax code
Once logged in, check your total income, how much tax you've paid, and your current tax code to make sure everything looks right.
Look for anything unusual
- Multiple jobs listed you don't recognise
- Old or outdated employer details
- Taxable benefits that no longer apply (like a company car you no longer have)
If something looks wrong, take action
If you spot any errors or out-of-date information, you can update your details online or contact HMRC directly for help.
You can also ask your employer to help explain the code they’re using—but only HMRC can make changes.
Summary
Your tax code may seem like a boring footnote on your payslip, but it plays a big role in your financial wellbeing. Knowing what it means—and checking that it’s right—can prevent overpayments, underpayments, and future stress.
So, next time you get paid, take 30 seconds to find and understand that little code.
It might be worth a lot more than you think.