Tax codes are a short string of numbers and letters that indicate how much tax-free Personal Allowance you have on a particular source of income based on your individual circumstances.

The standard rate of tax-free Personal Allowance in 2022 is £12,570 per year. However, there are many circumstances in which an income source is not eligible for the standard rate, and tax codes are there to inform your employer or pension provider what rate they should use.

If you want to check your tax code, you can find it on your payslips.

We are going to take a look at tax codes and what each different code means.

Tax codes are used by employers and pension providers to work out how much Income Tax to take from your pay or pension based on your tax-free Personal Allowance. HMRC decide which tax code to assign as they have worked out how much tax you must pay on all of your income sources as well as the value of any benefits your job has, such as a company car.

Every tax code is made up of a series of numbers and letters. Together they denote how your personal circumstances affect your tax-free allowance.

So let's jump in and take a look at what the numbers and letters in your tax code mean.

The numbers in your tax code inform your employer or pension provider the amount of tax-free income you are eligible for that year.

You multiply the numbers in the tax code by 10 to see what tax-free allowance you have. For example, 1257L means that you are entitled to the standard tax-free allowance of £12,570.

The letters in your tax code refer to your personal situation and how it affects your Personal Allowance.

So let's now breakdown the different letters and find out what each one means.

L Tax Code

The L tax code means that the standard tax-free Personal Allowance has been allocated to your income. By far, the most common tax code in the UK is 1257L, which means that you have a tax-free Personal Allowance of £12,570 on your income.

£12,570 is the standard Personal Allowance in 2022, but the figure does change. For example, in the tax year 2018/2019, the code was 1185L because the Personal Allowance was then at £11,850.

However, the tax code does not inform your employer or pension provider of the rate at which you are taxed. This depends on your amount of taxable income.

BR Tax Code

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 or income sources, BR is allocated for your second job if you are still falling within the basic rate of tax (20%) at your income level.

This would mean you are expected to earn no more than £50,270 in total within the year (in 2022).

The Personal Allowance should be used for the job in which you have the highest income. If this is not the case and your highest earning job has been allocated the BR code, you can contact HMRC and get them to switch the codes.

K Tax Code

Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way, and that is worth more than your tax-free allowance.

This usually happens if you are:

  • paying tax you owe from a previous year through your wages or pension
  • getting benefits you need to pay tax on - these can be state benefits or company benefits

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.

W1 or M1 Tax Code

W1 and M1 are emergency tax codes. 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 taxed according to what you have earnt in that particular pay period rather than what you have earnt throughout the whole year.

How much you have earnt so far and how much of your Personal Allowance you have currently used is not taken into account, which can result in overpayments of tax.

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

If you have overpaid tax, you will get a tax refund on your next pay date once you are back on the cumulative tax codes.

X Tax Code

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).

As with W1 and M1, X is also a non-cumulative tax code.

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

If you have paid too much tax, you can be rebated on your next pay date.

0T Tax Code

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

If you are on this tax code, it likely means that you have already used up your tax-free Personal Allowance from another source of income.

It could also mean that your employer has not received your P45 so they are unable to work out your tax code. In this instance, it is best to contact your employer and HMRC to get switched over to the correct tax code.

D0 Tax Code

Similar to the BR tax code, the D0 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 £50,271 - £150,000 within the tax year (2022/2023).

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 ask them to switch the codes around.

D1 Tax Code

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 code 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 tax year (2022/2023).

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 ask them to switch the codes around.

M Tax Code

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 through the Marriage Allowance scheme.

Marriage Allowance enables lower earning partners to transfer up to 10% of their Personal Allowance (which works out at £1,260) to their higher earning partner.

For example, let's say your income is £11,500 and your partner’s income is £20,000. You both have a Personal Allowance of £12,570, so you pay no tax, and your partner pays tax on £7,430. When you claim Marriage Allowance, you transfer £1,260 of your Personal Allowance to your partner. Your Personal Allowance becomes £11,310, and your partner gets a ‘tax credit’ on £1,260 of their taxable income.

This means you will now pay tax on £190, but your partner will only pay tax on £6,170. As a couple you will benefit, as you are only paying Income Tax on £6,360 rather than £7,430, which collectively saves you £214 in tax.

The M tax code is for the partner who receives the extra Personal Allowance, the higher earner.

N Tax Code

If your tax code contains N, this means that you have transferred some of your Personal Allowance to your spouse or partner through Marriage Allowance.

If your code is showing N, then you are the lower earner, and your higher earning partner should now have the corresponding M within their new tax code.

NT Tax Code

This code means that no tax is deducted from this particular source of income, and it is tax-free pay.

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.

C Tax Code

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 residence in Wales.

C0T Tax Code

The C indicates that your main home is in Wales and that you are therefore taxed according to the Welsh tax bands.

The 0T part of the code is the same as it is for a regular 0T tax code. It means that 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 Tax Code

The C indicates 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 of 20%.

Ordinarily you would have this tax code for a second job or a pension, and your earnings do not exceed £50,270 overall.

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 Tax Code

The C within this tax code indicates 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 that this code is allocated to, but at the higher rate of 40%.

You would normally 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 £50,271 - £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 CD0, you can contact HMRC and get them to switch the codes around.

CD1 Tax Code

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, CD1 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 CD1, you can contact HMRC and get them to switch the codes around.

S Tax Code

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 from those of England, Wales and Northern Ireland.

S0T Tax Code

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.

If your tax code is S0T, 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 Tax Code

If you reside in Scotland, the SBR tax code signifies that your primary residence is there, and your taxation follows the Scottish tax bands.

With the SBR tax code, all your income, regardless of its source, is subject to the basic tax rate of 20%. Typically, this code applies when you have a second job or a pension.

In Scotland, this tax code implies that your expected annual income should not exceed £25,688.

This code is necessary because your Personal Allowance can only be allocated to one employment. Hence, if you have multiple jobs and your income falls within the basic rate tax band, the SBR code will be assigned to the second job.

Ideally, your Personal Allowance should be used for the job with the highest income. However, if your highest-earning job has been assigned the SBR code, you can contact HMRC to request a code switch

SD0 Tax Code

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.

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%.

This would mean you are expected to earn between £25,689 to £43,662 within the year.

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, SD0 will be allocated for the second job if you are falling within the intermediate rate tax band 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 SD0, you can contact HMRC and get them to switch the codes around.

SD1 Tax Code

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.

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%.

This would mean you are expected to earn between £43,663 to £150,000 within the year.

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, SD1 will be allocated for the second job if you are falling within the higher rate tax band 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 SD1, you can contact HMRC and get them to switch the codes around.

SD2 Tax Code

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.

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%.

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

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, SD2 will be allocated for the second job if you are falling within the additional rate tax band 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 SD2, you can contact HMRC and get them to switch the codes around.

T Tax Code

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.

The most common tax code for the 2022/23 tax year is 1257L. This indicates that you are younger than 65 and you get the basic Personal Allowance. However, yours could be different, depending on your personal circumstances.

How do I work out my tax code number?

It is helpful to understand how your tax code number is calculated. This is because it could be wrong, meaning you are paying too much or too little tax.

You can figure out your tax code number by following these steps, which are based on how HMRC calculates it:

1. Work out your tax allowances

Usually, your tax allowances will be your Personal Allowance plus any job expenses and other allowances, such as the Blind Person’s Allowance, Marriage Allowance, Personal Savings Allowance and Trading Allowance.

2. Calculate your deductions

Your deductions are any income you haven’t already paid tax on, for example, some state benefits and wages from part-time work.

3. Subtract your deductions from your allowances

The answer is the amount you are allowed to earn before you have to start paying Income Tax.

4. Divide the figure by ten

This will form the number part of your tax code.

How do I check my tax code?

HMRC holds you responsible for checking your own Income Tax code. So, if you are employed, you should make sure you check and fully understand your tax code to ensure you are paying the right amount of tax.

As mentioned at the beginning of this article, you can check your tax code on your payslip. You can also find it on a Tax Code Notice letter from HMRC, on the HMRC app or online (note that you will need to create a personal tax account to do this). With the latter two options, you will also be able to access additional information, such as:

  • Changes to your tax code
  • An estimate of the tax you need to pay over the whole year
  • Estimates of how much income you’ll receive from employment and pensions
  • Your income from the previous five years

What if my tax code is wrong?

It is essential to check that you are on the correct tax code because errors aren’t uncommon. 

There are several situations that can cause tax code errors. Some of these are:

  • You’ve started your first job in the middle of a tax year and have been given an emergency tax code
  • You’ve changed jobs, but HMRC thinks you have two jobs because your former employer hasn’t informed it that you’ve moved on.
  • Part of your salary is made up of company benefits
  • You have more than one source of income
  • You’ve recently retired

If you believe that your tax code is wrong, you will need to inform HMRC immediately so they can adjust it for you. The easiest way to do this is to call them on 0300 200 3300, but you can also make contact online via your personal tax account.