UK HMRC Tax Codes—The Full Guide

Each year, HMRC issues tax codes to UK employees and pension earners that define how much tax you must pay on your earnings. Your employer looks at this tax code to know how much to deduct from your PAYE taxes each month. 

Occasionally, HMRC might make an error when issuing your tax code, so it’s vital to understand what the tax code means to avoid overpaying on your PAYE taxes. 

We describe each of the tax codes in this in-depth guide to help you understand their meaning. 

Self-employed people don’t receive tax codes

Self-employed people typically don’t have fixed earnings each month, so it’s impossible to determine ahead of time how much tax they must pay. Therefore, self-employed people in the UK don’t pay PAYE taxes. Instead, they receive a UTR—unique taxpayer reference—which is a unique reference that remains valid for their lifetime. 

Self-employed persons must fill out and submit a Self-Assessment Tax Return each year, using this identifier. 

Where to find your tax code

You can find your tax code in one of the following places: 

• Your payslip
• In the HMRC mobile app
• On the HMRC website
• In a letter that HMRC sends you informing you of your tax code

A tax code’s structure

Tax codes are made up of either letters and numbers, or just letters. Below, we provide a quick summary table of each letter, with more details following the table, including some examples to help you understand the code better. 

Let’s dive into some examples to bring the above codes to life. 

BR:

The BR code is an emergency code and indicates that all tax from this income source must be taxed at the basic rate of 20%. People receiving this code usually have more than one job, and this code is usually applied to the second job. 

This code might also apply if your employer is running payroll but lacks a code for you, so they use the BR code. 

D0 and D1:

D0 and D1 also mean that all the income from that income source must be taxed, but at the higher rate or additional rate. 

• D0 = higher rate (40%)
• D1 = additional rate (45%)

For example, if you have two jobs and the first job pays you more than £50,270, your other source of income will likely receive a D0 tax code meaning that you must pay the higher tax rate for all income earned for the other income. 

K:

A K is placed at the beginning of the tax code to indicate that you’re receiving other income above your Personal Allowance that HMRC isn’t taxing any other way. This code might apply if you’re paying off tax from a previous year or if you’re receiving company perks or state benefits which are taxable. 

Even if this additional income is being earned from another organisation, the K indicates it must be taxed by your employer. 

One example of the K code in application is if you owe past taxes. In this case, HMRC might issue a code such as K200, meaning that you owe £2,000 more in taxes than the Personal Allowance of  £12,570. To calculate your monthly PAYE tax, your employer must then add this £2,000 to your income. 

L:

Most people receive the L code in the form 1257L, which means you’re obliged to a Tax Free Personal Allowance of £12,570 before paying any tax. After that, your employer deducts 20% (the basic rate). 

M and N:

The “Married Allowance” codes of M and N indicate that you and your spouse are making use of the option to transfer 10% of one spouse’s Personal Allowance to the other. If one of the spouses earns less than the Personal Allowance then transferring 10% of their allowance effectively lowers your cumulative tax rate for the both of you. 

An M in your tax code indicates that you’ve received 10% of your partner’s Personal Allowance. 

An N indicates that you’ve given this 10% to your spouse. 

T :

HMRC places a T at the end of your tax code to indicate that your Personal Allowance is being split between two sources of income. Receiving a T tax code means that HMRC typically needs more information to assign you the proper tax code. 

0T:

If you receive the 0T code, it means all your income is being taxed. HMRC issues this code when it isn’t sure which code to issue you because it requires more information. This can sometimes happen if you start a new job and your employer doesn’t yet have the data necessary for HMRC to issue the correct tax code. 

It’s important to get the 0T code rectified as soon as possible to avoid being overtaxed. 

NT:

Conversely, an NT code means this income must not be taxed. This might apply if you’re going through bankruptcy or if you’re already paying taxes in another country (such as might be the case for non-residents).

C, C0T, CBR, CD0, CD1: (Wales only)

All codes beginning with a C apply to Wales. The C stands for Cymru, which is the Welsh word for Wales. 

The codes are the same as their England equivalents as follows: 

• C = Wales equivalent of L
• C0T = Wales equivalent 0T
• CBR = Wales equivalent of BR
• CD0 = Wales equivalent of D0
• CD1 = Wales equivalent of D1

For example, in England, you might receive a 1257L code, whereas in Wales, you’d receive a 1257C code. 

S, S0T, SBR, SD0, SD1, SD2, SD3: (Scotland Only)

The S codes represent Scotland, and are roughly equivalent to their English counterparts. The only difference is in the D codes because Scotland has different tax brackets. 

The equivalents are as follows:

• S = Scotland equivalent of L
• S0T = Scotland equivalent 0T
• SBR = Scotland equivalent of BR
• The codes from SD0-SD3 represent the Scotland tax brackets

Scotland Tax brackets: 

• SD0 = intermediate rate (21%)
• SD1 = higher rate (41%)
• SD2 = advanced rate (45%)
• SD3 = top rate (48%)

W1, M1, and X

HMRC appends W1, M1, or X to the end of a tax code to indicate that it’s an emergency tax code. For example, a 1257L M1 code shows that you have a 1257L code but the code is temporary while HMRC gathers more data. 

W1 is used for weekly salary earners while M1 is used for monthly salary earners. The X is used when HMRC lacks information. 

It’s important to get the emergency codes rectified as soon as possible to avoid overpaying on your PAYE taxes. 

Getting help with your tax codes

HMRC provides a tool for people to understand their tax codes online. Unfortunately, the tool only gives you information on your current tax code and doesn’t inform you of the other possibilities which might be better suited to your situation. In that case, it’s best to review our guide above to understand what code is most appropriate for you or your employees. 

Accepting the wrong tax code will inevitably lead to incorrect tax payments, so it’s important to determine the correct tax code as soon as possible. Pearl Accountants is an expert at helping businesses of all sizes ensure their accounting needs are met properly. If you need help understanding your employees’ tax codes, we can certainly assist. To learn more, feel free to contact us here.

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