What do I need to know about my Tax Code in the United Kingdom (UK)?

A tax code is a combination of numbers and letters used by HM Revenue & Customs (HMRC) to determine the correct amount of income tax that should be deducted from your earnings, whether it’s from your salary or pension. Essentially, it represents your tax-free allowance—the portion of your income you can earn before paying any tax.


How to Read Your Tax Code

Your tax code is made up of numbers and letters, each part giving specific information about your tax situation. For the current tax year, the most common tax code is 1257L. Here's how to interpret it:

  • Numbers: The numbers in your tax code indicate how much tax-free income you’re entitled to in a year. For instance, 1257 means you can earn £12,570 before you start paying income tax.

  • Letters: The letters provide additional details about your tax situation:

    • L: You’re entitled to the standard Personal Allowance.
    • M: You’ve received a transfer of Marriage Allowance from your partner.
    • N: You’ve transferred part of your Personal Allowance to your partner.
    • BR: All your income is taxed at the basic rate, often used if you have a second job or pension.
    • D0: All your income is taxed at the higher rate, usually for additional income or secondary jobs.
    • D1: All your income is taxed at the additional rate.
    • K: You owe tax from a previous year or receive taxable benefits that reduce your Personal Allowance.


Why Your Tax Code Might Change

Your tax code can change for various reasons, including:

  • Changes in Income: If your earnings increase or decrease, HMRC may adjust your tax code to reflect your new financial situation.
  • New Employment: Starting a new job can temporarily change your tax code while HMRC and your employer confirm your income details.
  • Benefits in Kind: If you receive non-cash benefits from your employer, like a company car or private medical insurance, these can impact your tax code.
  • Marriage or Civil Partnership: You might be eligible for the Marriage Allowance, which could alter your tax code.
  • State Benefits: Receiving certain state benefits, such as the State Pension, can affect your tax code.
  • Personal Circumstances: Changes like reaching the age to receive the state pension can result in a tax code adjustment.


What to Do if Your Tax Code is Incorrect

If you suspect your tax code is wrong:

  1. Check Your Payslip: Look at your payslip to verify your tax code and the deductions made.
  2. Contact HMRC: If you believe there’s an error, contact HMRC online or by phone. They may ask for details about your income and any benefits you receive to correct your tax code.
  3. Notify Your Employer: If HMRC updates your tax code, inform your employer to ensure your future pay reflects the correct tax deductions.

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