UK Tax Codes—What Do They Mean?
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Understanding your tax code is vital to avoid overpaying on your PAYE taxes. Unfortunately, the numbers and letters used in HMRC tax codes are both unintuitive and confusing. We hope to bring clarity to this seemingly complex topic with this in-depth guide.
What is a tax code?
A tax code defines how much PAYE tax must be deducted from your salary or pension each month. HMRC works out the tax code and sends it to you. Your employer then deducts your PAYE tax from this amount and automatically sends it to HMRC each month.
Do self-employed persons receive a tax code?
No, self-employed people don’t receive a tax code but receive a UTR (Unique Taxpayer Reference) instead. This UTR is a unique number assigned to you which never changes.
Because self-employed people don’t receive a salary, it’s impossible to work out their fixed PAYE payments. Self-employed people submit a Self-Assessment Tax Return at the end of each fiscal year and must pay tax based on that.
Your UTR never changes, even if you cease being self-employed for a time and then return to being self-employed later. You will continue to have the same UTR.
Where do I find my tax code?
Unlike self-employed people, you will have a tax code for each source of income you have, and it can change frequently. You’ll find each of these codes in one of the following places:
- A direct letter sent to you from HMRC informing you of your tax code.
- Online on the HMRC website.
- Inside the HMRC mobile app.
- On your payslip.
How are tax codes structured?
A tax code will be either:
- A combination of numbers and letters
- Letters only
The number typically refers to your Personal Allowance but not always, such as when that number is combined with the letter K, which we discuss below.
The letters have specific meanings, which we also explain in the next section.
Understanding the letters and numbers in a tax code, with examples for each one
Although the HMRC website does provide a list of the letters it uses in tax codes, the explanation for those letters isn’t comprehensive. Below, we take these descriptions a step further and provide examples and real-world scenarios for each letter used in the HMRC tax code.
BR:
Also known as the “emergency code”. If you’ve been assigned a BR tax code, it indicates that all of your income from this job is being taxed at the basic Income Tax rate of 20%, without the benefit of a tax-free Personal Allowance.
Typically, this suggests that you have more than one job, and your Personal Allowance is being applied to your other employment. Sometimes this may be used by your new employer running payroll while they are waiting to get your actual tax codes from HMRC.
Example: You have a second job that brings you some extra money. Your first job will likely have a code that represents your Personal Allowance. However, your second job is taxed 100%, designated by the BR letter code.
C, C0T, CBR, CD0, CD1: (For Wales only)
“C” stands for “Cymru”—the Welsh name for Wales. HMRC adds a C to the beginning of tax codes when they’re being applied in Wales, and they have the same meaning as their England counterparts.
For example, CBR is the Welsh version of the BR code (explained above). C0T is the equivalent of 0T (explained below), and so on.
C is the equivalent of L (also explained below).
Example: 1257C would mean (a) you live in Wales and (2) your Personal Allowance is £12,570. Any income over this amount gets taxed at 20% until the next higher tax bracket.
D0 and D1:
The D0 and D1 codes are the same as the BR code such that all your income from this job or pension is taxed at a higher rate (used when you have more than one job or pension).
Example: If you earn more than £50,270 a year, your second source of income (such as a pension or second job), would all be taxed at the higher rate of 40%, and you’d have a D0 tax code. Similarly, you’d get a D1 code on your secondary income if you earn more than £125,140 per year, and that second income would be taxed at 45%.
K:
A K gets added to the beginning of your tax code if you have income that isn’t being taxed any other way, and that income is higher than your Personal Allowance.
For most people, this occurs when you are:
- Paying off tax owed from a previous year through your wages or pension.
- Receiving taxable benefits, whether they are state benefits or company perks.
Your employer or pension provider deducts the tax owed on income that hasn’t been taxed directly from your wages or pension, even if the untaxed income is being paid to you by another organisation.
Example: If you owe HMRC £14,000, you might receive a K143 code, meaning your employer must add £1,430 to your income when calculating your PAYE tax. This figure is the difference between the Personal Allowance of £12,570 for 2024/2025 and £14,000.
L:
This is the typical designation for tax codes without any modifiers. Most people will be on this tax code, meaning you’re entitled to the standard Tax-free Personal Allowance.
Example: A code of 1257L means your Personal Allowance is £12,570. After that, you’ll be taxed at the basic rate of 20% up to £50,270, then 40% up to £125,140 (higher rate), and 45% above that (additional rate).
M and N:
Both of these are “Married Allowance”.
M means your partner has transferred 10% of their Personal Allowance to you.
An N means you’ve transferred 10% of your Personal Allowance to them.
Example: Your spouse earns £11,700 per year so doesn’t pay tax. You earn £24,000 per year. Your mutual total taxable income is £12,546 (£24,000 – £12,570), for a total tax bill of £2,509.20 (20% of £12,546).
Your spouse can transfer £1,260 (10%) of their Personal Allowance to you, giving us the following figures:
Spouse’s New Personal Allowance: £11,310 (£12,570 – £1,260)
Your New Personal Allowance: £13,830 (£12,570 + £1,260)
Your spouse must now pay tax on £390 (New Personal Allowance of £11,700 minus earnings of £11,310) while you must only pay tax on £10,170 (New Personal Allowance of £13,830 minus earnings of £24,000).
Your combined taxable income is £10,560 (spouse’s taxable earnings of £390 plus your taxable earnings of £10,170), compared with £12,546 before.
Previous tax bill: £2,509.20
New tax bill: £1,017
You save £1,492.20 in taxes.
In the example provided, your tax codes would be:
Spouse: 1131N
You: 1383M
T:
The letter “T” indicates that your allowances are split between two or more sources of income. If you see a “T” at the end of your tax code, it means HMRC requires additional information from you to finalise your correct tax code
0T:
You have a zero Personal Allowance, typically because HMRC isn’t sure which tax code to give you.
Example: You’ve started a new job and your employer doesn’t have the required info to get you a proper tax code. It’s vital to get this rectified at HMRC as soon as possible to avoid paying excess taxes.
NT:
NT stands for “No Tax”—you don’t pay any tax on the income.
Example: This could apply if you’re going through bankruptcy or if you’re a non-resident and already pay taxes in another country.
S, S0T, SBR, SD0, SD1, SD2, SD3: (For Scotland Only)
The S stands for Scotland. So, SBR has the same meaning as BR but referring to Scotland, S0T has the same meaning as 0T, etc.
S on its own is the equivalent of L.
Scotland has different tax rates than England, so the SD0-SD3 codes refer to additional income taxed at the following rates:
- SDBR is taxed at the Scotland basic rate (20%)
- SD0 is taxed at the Scotland intermediate rate (21%)
- SD1 is taxed at the Scotland higher rate (41%)
- SD2 is taxed at the Scotland advanced rate (45%)
- SD3 is taxed at the Scotland top rate rate (48%)
Emergency tax code letters—W1, M1, and X
If you’ve recently started a new job, became an employee after being self-employed, or started receiving company benefits or the state pension, HMRC will assign you an emergency tax code letter while it works out the appropriate tax code for you.
W1:
This emergency code is for weekly salary earners.
M1:
The M1 emergency code is for monthly salary earners.
X:
HMRC uses this code when it has no idea what category to place you in.
Summary of tax codes
Below is a quick summary of all the tax codes for easy reference:
Tax Code | Summary |
BR | Emergency code. All income taxed at basic rate (20%) without Personal Allowance. |
C, C0T, CBR, CD0, CD1 | Welsh equivalents of standard codes. |
D0 | All income taxed at the higher rate (40%). Used when you have more than one job or pension. |
D1 | All income taxed at additional rate (45%). Used when you have more than one job or pension. |
K | Indicates untaxed income exceeding the Personal Allowance, such as when you’re paying off a previous tax bill or receiving taxable company perks. |
L | Standard code for basic Personal Allowance. This is the typical designation that most people will see. |
M | Married Allowance. The M means you’ve received 10% of your partner’s Personal Allowance. |
N | Married Allowance. The N means you’ve transferred 10% of your Personal Allowance to your partner. |
T | Your tax allowances are being split between multiple income sources and HMRC requires more data to finalise it. |
0T | You have a zero Personal Allowance for this income source. |
NT | No tax to be paid on this income. |
S, S0T, SBR, SD0, SD1, SD2, SD3 | Scottish equivalents of England codes, but with Scotland tax rates. |
W1 | Emergency code for weekly salary earners. |
M1 | Emergency code for monthly salary earners. |
X | Emergency code when HMRC lacks sufficient information. |
Get help with your employees’ tax codes
Although HMRC provides an online checker for you to understand the meaning of your employees’ tax code, the tool lacks a comprehensive description of all the codes, preventing you from seeing if you are better suited to having a different code.
The wrong tax code can result in excess payments to HMRC, so it’s vital to get this right. In this regard, we can help. Fusion Accountants specialises in helping businesses of all types with their UK accounting needs. We can help you ensure your employees have the correct tax codes so you don’t overpay on their taxes. To learn more, contact us here.
