Tax Codes Explained: Every Letter on Your Payslip and What It Costs You

Published 9 June 2026

Your tax code is the single most consequential thing on your payslip and almost nobody checks it. It tells your employer how much of your pay to leave untaxed, and if it is wrong, nothing about your payslip will look obviously broken. The money just quietly goes to the wrong place. HMRC issues millions of coding notices a year and the responsibility for spotting a mistake sits with you, not your employer, who is simply doing what the code tells them. Here is how to read yours in about two minutes.

What the Number Means

The number is your tax-free allowance for the year with the final digit removed. The standard code for 2026/27 is 1257L, and the 1257 stands for £12,570 of tax-free pay, which is the personal allowance. Your employer spreads that across the year, so on monthly pay you get £1,047.50 free of tax each month and on weekly pay you get £241.73.

HMRC works the number out by starting with your allowances and taking off anything they want to tax that is not going through payroll. A company car, private medical insurance, untaxed savings interest, an underpayment from a previous year being collected this year: each of those reduces the number. Work expenses you have claimed, such as a uniform flat rate, increase it.

So a nurse with the £125 uniform allowance has £12,695 of tax-free pay and a code of 1269L. Someone with a £4,000 company car benefit has £8,570 and a code of 857L. The number is not a rating or a score. It is just arithmetic you can check.

The Letters, and What Each One Signals

Code	What it means
L	You get the standard tax-free personal allowance.
M	Marriage Allowance: you have received a transfer of 10% of your partner's allowance.
N	Marriage Allowance: you have transferred 10% of your allowance to your partner.
T	Your code includes other calculations, often the personal allowance taper above £100,000.
0T	No allowance at all. Either it is used up, or a new employer has no details for you.
BR	Everything from this job is taxed at the basic rate, usually because it is a second job.
D0	Everything from this job is taxed at the higher rate.
D1	Everything from this job is taxed at the additional rate.
K	Untaxed income exceeds your allowance, so an amount is added to your taxable pay.
NT	No tax is taken from this income at all.
S prefix	Scottish rates apply, because your main home is in Scotland.
C prefix	Welsh rates apply.
W1, M1 or X	An emergency code, worked out on that week or month alone rather than cumulatively.

The K Code, Which Is the One People Panic About

A K code means the things HMRC wants to tax outside payroll are worth more than your personal allowance, so instead of subtracting tax-free pay, your employer adds an amount to your taxable pay. Roughly speaking, the number after the K multiplied by ten is the amount added over the year.

Take someone earning £42,000 with a company car and fuel benefit worth £16,000. Their allowance is £12,570 and their deductions are £16,000, which leaves a negative allowance of £3,430. The code comes out around K342. Payroll then taxes them on about £45,430 rather than £42,000, and their monthly deduction rises accordingly.

It is not a penalty. It is HMRC collecting tax on the car through your salary because there is nowhere else to collect it from. If a K code appears out of nowhere and you do not have a car, medical cover or a second income, that is worth a phone call. There is a limit built into the PAYE rules that stops any code taking more than half your pay in a single period, which is why a very large K code can leave an underpayment to settle at the end of the year even though the code was applied correctly.

Emergency Codes and Why the First Payslip Looks Wrong

Emergency codes end in W1, M1 or X, and some payslips show NONCUM instead. They are used when a new employer does not have enough information about your earlier income in the tax year, typically because you have no P45.

Normal PAYE is cumulative. Each payday, your employer looks at your total pay since 6 April, works out the total tax due on it, subtracts what you have already paid and deducts the difference. That mechanism self-corrects. An emergency code switches it off. Each month is treated in isolation, as though you had earned that amount every month of the year, so any allowance you have not used earlier in the year is simply not given to you.

If you started a job in August after four months out of work, the difference is real money. On a cumulative code you would get eight twelfths of the annual allowance back over the remaining months. On an emergency code you get one twelfth a month and the rest waits. Hand over your P45 or complete the starter checklist and it usually resolves within a couple of pay runs. HMRC says it typically updates a code within 35 days once it has details from both employers.

Two jobs, one allowance: your personal allowance is not doubled because you have two employers. HMRC normally gives the whole allowance to your main job and puts the second on BR, so every pound of the second job is taxed at 20%. If your main job pays less than £12,570, that is the wrong way round and you are overpaying. Ask HMRC to split the allowance between the two.

The Six Reasons a Code Usually Goes Wrong

You changed jobs mid-year and the P45 did not follow you, so you spent a period on an emergency or 0T code.
A benefit ended but the code did not change. You handed the company car back in March and the deduction is still sitting there in July.
HMRC estimated something. Coding notices often carry an estimate of savings interest or a bonus based on last year, and estimates go stale.
An old underpayment is being collected through the code. That is legitimate, but check the amount and the year it relates to.
You have two sources of income and the allowance has been allocated to the smaller one.
You moved between Scotland, Wales and England and the prefix is stale.

How to Check and Fix It

Everything you need is in your Personal Tax Account on GOV.UK. Sign in and you can see your current code, the calculation behind it, every source of income HMRC believes you have, and the benefits they have assumed. The breakdown is the useful bit, because it shows exactly which deduction is causing the number to be lower than 1257.

If something is wrong, you can correct most of it in the account itself: remove a benefit you no longer receive, update an estimate of untaxed income, or tell HMRC about a second job that has ended. HMRC then issues a revised code to your employer electronically, usually within a few weeks, and your next payslip picks it up.

Because PAYE is cumulative, a correction part way through the year does not just fix things going forward. It recalculates the whole year to date, so an overpayment often comes back as a smaller deduction, or occasionally a refund, on the next payslip rather than as a separate cheque. If the year has already ended, HMRC issues a P800 calculation and you claim the repayment online.

Do not assume a refund is free money. If your code was too generous, the correction goes the other way and HMRC will collect the shortfall, usually by adjusting next year's code. It is far less painful to catch it in month two than in month eleven.

Keep the Paperwork That Proves It

Your P60 at the end of the tax year shows your total pay and tax for that employment, and your P45 shows the same figures up to the date you left. Both carry the tax code that was used. If you ever need to argue with HMRC about a year that has closed, those two documents are the evidence, and they are much easier to keep as you go than to obtain later. A P11D, if you get one, lists the benefits your employer reported, which is exactly where the deductions in your code come from.

Ten minutes checking a coding notice when it arrives is worth more than any other tax admin most employees will ever do. The code is the only part of PAYE you can influence directly, and it is the part most likely to be quietly wrong.