A tax code – typically several numbers and a letter – is used to work out how much income tax should be deducted from an employee’s salary.
Tax Codes – Typical Format
The tax code format for the majority of individuals contains three numbers followed by a letter.
The number element, when multiplied by 10 (roughly speaking), shows the amount of income the taxpayer can earn before they start paying tax.
The letter following the number is used to denote other influences on the eligibility for the personal allowance.
For example, the majority of working-age taxpayers have a tax code of 1257L during the 2021-22 and 2022-23 tax years.
L – the taxpayer is eligible to receive the current personal allowance (£12,570 during the current tax year).
T – further variables have affected the calculation of your tax-free allowance (e.g. you earn over £100,000).
K – this code is placed before the three numbers (e.g. K459), and is used when your untaxed income is greater than your taxable income. If you receive significant benefits for your company, for example, you may be given a ‘K’ code.
N – marriage allowance – you have transferred 10% of your personal allowance to your partner.
M – marriage allowance – you have received 10% of your partner’s personal allowance.
NT – no tax is payable on this income.
0T – You have no personal allowances, so your entire salary will be subject to income tax.
S – Scottish income tax rate.
BR, D0, D1 – These codes are often used when your tax-free allowance has already been used up against another source of income, so your entire pay from this source is taxed at the basic (20%), higher (40%) or additional (45%) rates.
How do you find out your tax code?
Your personal tax code will be displayed on your payslip assuming you are paid via the PAYE system. Your code will also be displayed on your P45 if you change employments, and your end-of-year P60 form which shows your salary, income tax and NIC amounts for the previous tax year.
You may also receive an HMRC coding notice at the start of the calendar year to allow your employer to make an adjustment to your tax amounts for the forthcoming tax year.
What if you have more than one source of PAYE income?
If you have salaried income from more than one source, you will have two (or more) separate tax codes. Your personal allowance will typically be deducted from your principal salary. Your additional tax code(s) may be BR or DO (see above) to show that tax is payable on the full amounts.
If you have any questions about your tax code or think that it is wrong, talk to your accountant.