The numbers within the tax code indicate your tax-free allowance which is how much tax-free income you can earn that year before income tax is deducted.

You multiply the numbers within the tax code by 10 to see what allowance you have, so for a tax-free allowance of £12,500 your tax code would contain the numbers 1250.

Where confusion arises for some people, is in the letters contained within their tax code, as they mean different things depending on your circumstances.

L - The inclusion of an L in your tax code means that the standard tax-free personal allowance has been allocated to the income.

For this year that allowance is £12,500, so the tax code is 1250L.

The rate at which you are taxed depends on your amount of taxable income.

For the tax year 2018/2019 the code was 1185L because the personal allowance was lower (£11850) for that year.

BR - This tax code means you are taxed on all income at the basic rate of 20%. Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, BR will be allocated for the second job if you are falling within the basic rate tax band still at your income level.

This would mean you are expected to earn no more than £50,000 within the year.

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with BR you can contact HMRC and get them to switch the codes around.

K - You may have a K at the start of your tax code if you have deductions as a result of company benefits, state pension contributions or tax owed from previous years.

It tells the employer they need to use a negative tax free amount.

You get a K tax code when your personal allowance is not large enough to cover the adjustments.

If your tax code was K500 for instance, this indicates to your employer that they need to add on 10 x 500 (£5,000) to your salary, to work out your taxable income before calculating deductions.

If your salary was £25,000 and you had a tax code of K500 then your taxable income would actually be £30,000. The tax deduction will never be more than 50% of your gross pay for that pay period.

W1 or M1 - When your tax code has a W1 or M1 at the end this means that you are on an emergency tax code.

W1 is used when you are paid weekly and M1 when you are paid monthly.

These are non-cumulative tax codes, which means that you are being taxed according to what you have earnt in that particular pay period rather than what you've earnt throughout the whole year to date.

How much you’ve earnt so far and how much of your personal allowance you’ve currently used is not being taken into account, which can result in overpayments of tax.

If you have a W1 or M1 it is advised to contact HMRC and get them to issue the correct tax code to your employer, who will update it as soon as they receive this instruction from HMRC.

Any overpayments that you may have made can be rebated on your next pay date, once you are back on the cumulative tax codes.

X - X is another emergency tax code like W1 or M1, but X is used when you have a non-standard pay period, so pay that is not weekly (W1) or monthly (M1).

X is a non-cumulative tax code, which means that you are being taxed according to what you have earnt in that particular pay period rather than what you've earnt throughout the whole year to date.

How much you’ve earnt so far and how much of your personal allowance you’ve currently used is not being taken into account, which can result in overpayments of tax.

If you have a X tax code it is advised to contact HMRC and get them to issue the correct tax code to your employer, who will update it as soon as they receive this instruction from HMRC.

Any overpayments that you may have made can be rebated on your next pay date, once you are back on the cumulative tax codes.

0T   - If your tax code is 0T this means tax will be deducted from all income you earn and you will not have a tax-free personal allowance.

If you are on this tax code it could mean that your employer has not received your P45 so are unable to work out your tax code.

It is best to contact your employer and HMRC to get switched over to the correct tax code.

It could also mean that you have used up all of your personal allowance for the year already, prior to the commencement of your employment.

C - The inclusion of a C within a tax code means that your income is taxed according to the welsh tax bands, due to having your main home within Wales.

C0T - The C within this tax code is to indicate that your main home is within Wales and you are therefore taxed according to the welsh tax bands.

The 0T part of the tax code means tax will be deducted from all income you earn and you will not have a tax-free personal allowance.

If you are on this tax code it could mean that your employer has not received your P45 so are unable to work out your tax code.

It could also mean that you have used up all of your personal allowance for the year already, prior to the commencement of your employment.

CBR - The C within this tax code is to indicate that your main home is within Wales and you are therefore taxed according to the welsh tax bands.

The BR part of the tax code means you are taxed on all income at the basic rate.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, BR will be allocated for the second job if you are falling within the basic rate tax band still at your income level.

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with BR you can contact HMRC and get them to switch the codes around.

CD0 - The C within this tax code is to indicate that your main home is within Wales and you are therefore taxed according to the welsh tax bands.

Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the higher rate of 40%.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D0 will be allocated for the second job if you are falling within the higher rate tax band at your income level.

This would mean you are expected to earn between £50,001 - £150,000 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D0 you can contact HMRC and get them to switch the codes around.

CD1 - The C within this tax code is to indicate that your main home is within Wales and you are therefore taxed according to the welsh tax bands.

Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the additional rate of 45%.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D1 will be allocated for the second job if you are falling within the additional rate tax band at your income level.

This would mean you are expected to earn more than £150,000 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D1 you can contact HMRC and get them to switch the codes around.

D0 - Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the higher rate of 40%.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D0 will be allocated for the second job if you are falling within the higher rate tax band at your income level.

This would mean you are expected to earn between £50,001 - £150,000 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D0 you can contact HMRC and get them to switch the codes around.

D1 - Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the additional rate of 45%.

Ordinarily you would have this tax code for a second job or a pension. The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D1 will be allocated for the second job if you are falling within the additional rate tax band at your income level.

This would mean you are expected to earn more than £150,000 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D1 you can contact HMRC and get them to switch the codes around.

M - If you have an M in your tax code, this means that your spouse or civil partner has transferred some of their personal allowance to you, by taking advantage of marriage allowance.

This allows lower earning partners to transfer up to 10% of their personal allowance (£1,250) to their higher earning partner.

Most commonly the new code would be 1375M if the full 10% has been transferred to you.

Your partner's code should have changed to 1125N instead of you both having the standard 1250L codes.

N - If your tax code contains N this shows that you have transferred some of your personal allowance to your spouse or partner through marriage allowance.

This enables a couple joined in marriage or civil partnership to save up to £250 a year on tax.

If your code is showing N then you would be the lower earner, and your higher earning partner should now have the corresponding M code within their new tax code, instead of the standard 1250L code.

Most commonly the new code would be 1125N, if you have transferred the full £1,250 you are able to, whilst your partner's code would change to 1375M.

NT - This code means that no tax is deducted from your income. 

This is a fairly uncommon code used in specific circumstances, such as people that may be classed as self-employed and not subject to PAYE.

S - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

S0T - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

If your tax code is 0T this means tax will be deducted from all income you earn and you will not have a tax-free personal allowance.

If you are on this tax code it could mean that your employer has not received your P45 so are unable to work out your tax code.

It is best to contact your employer and HMRC to get switched over to the correct tax code.

It could also mean that you have used up all of your personal allowance for the year already, prior to the commencement of your employment.

SBR - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

This tax code means you are taxed on all income at the basic rate of 20%. Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, BR will be allocated for the second job if you are falling within the basic rate tax band still at your income level.

This would mean you are expected to earn no more than £24,944 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with BR you can contact HMRC and get them to switch the codes around.

SD0 - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the intermediate rate of 21%.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D0 will be allocated for the second job if you are falling within the intermediate rate tax band at your income level.

This would mean you are expected to earn between £24,945 - £43,430 within the year.

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D0 you can contact HMRC and get them to switch the codes around.

SD1 - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the higher rate of 41%.

Ordinarily you would have this tax code for a second job or a pension.

The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D1 will be allocated for the second job if you are falling within the higher rate tax band at your income level.

This would mean you are expected to earn between £43,431 - £150,000 within the year. 

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D1 you can contact HMRC and get them to switch the codes around.

SD2 - The S within a tax code means that your main home is in Scotland and therefore you are taxed according to the Scottish tax bands, which differ to those of England, Wales and Northern Ireland.

Similar to the BR tax code, this tax code means you are taxed on all income for the employment or pension that this code is allocated to, but at the additional rate of 46%.

Ordinarily you would have this tax code for a second job or a pension. The reason for having this is that your personal allowance can only be allocated to one employment, so in situations where you have two jobs, D2 will be allocated for the second job if you are falling within the additional rate tax band at your income level.

This would mean you are expected to earn more than £150,000 within the year.

The personal allowance should be used for the job in which you have the highest income, although if this is not the case and your highest earning job has been allocated with D2 you can contact HMRC and get them to switch the codes around.

T -  A tax code containing T means that HMRC likely do not have all the information they need to allocate you the correct tax code and it is advised that you contact them to review your income and get yourself on the correct tax code.