The tax code is fundamental to the operation of PAYE. An employee’s tax code provides the employer with the information needed to deduct the correct amount of tax from an employee’s pay. There are various types of tax codes depending on an employee’s circumstances.

A tax code is typically made up of numbers and letters.

Most people will have a suffix code comprising a number followed by a letter. The number in a suffix code indicates how much tax-free pay the individual is entitled to for the tax year – the number is their personal allowance for the year, less the last digit. For example, if a person is entitled to the standard personal allowance of £12,570 for 2025/26, the number in their tax code will be 1257.

The number will be different to this if there are deductions in the employee’s tax code, for example, to collect underpaid tax for a previous tax year or to collect the tax due on benefits in kind which have not been payrolled. It may be higher if, for example, the employee makes donations to charity.

The letter in the tax code refers to the employee’s situation and how this affects their personal allowance The following letters may be found in a suffix code:

· L indicates that the employee is in receipt of the standard personal allowance;

· M indicates that the employee has received the marriage allowance;

· N indicates that the employee has transferred £1,260 of their allowance to their spouse or civil partner; and

· T indicates that the code includes other calculations to work out the employee’s personal allowance. This may be used where the personal allowance is spilt between more than one job and/or pension.

For 2025/26 a person in receipt of the standard personal allowance with no deductions will have a tax code of 1257L. A person who has received the marriage allowance and has no deductions in their code will have a tax code of 1383M, while their spouse/civil partner will have a code of 1131N.

There are also special codes. Code 0T indicates that the employee has no personal allowance. It may also be used where an employee starts a new job and the employer does not have the details needed to give the employee a tax code.

Code BR indicates that all income from this job or pension is to be taxed at the basic rate. This may be the case if the person has more than one job or pension and the personal allowance is allocated fully to another job or pension. Code D0 indicates that all income from the job or pension is taxed at the higher rate, while code D1 indicates that all income from the job or pension is taxed at the additional rate. Similar codes for Scottish taxpayers indicate all income is taxed at the relevant Scottish rate.

If the deductions in the employee’s code exceed their allowances, the employee’s code will have a K prefix. The number element is additional pay added to their actual pay when working out their tax rather than their tax-free pay.

An S prefix indicates that the taxpayer is a Scottish taxpayer and the Scottish rates of tax apply, while a C prefix indicates that the taxpayer is a Welsh taxpayer.

Emergency codes

If the code is followed by ‘W1’, ‘M1’ or ‘X’, it is an emergency code, for example 1257L M1. The code is applied on a non-cumulative basis. Emergency codes are temporary and are usually updated when HMRC have sufficient information.

Updating a tax code

It is important to check that your tax code is correct. You will see it on your payslip. You can also find it on your HMRC app. If you think that your tax code is wrong, you can update it using HMRC’s check your income tax online service (see www.gov.uk/check-income-tax-current-year).