UK Tax Codes Explained: What They Mean (2025/26)

Your tax code is a short string of numbers and letters, and it quietly decides how much Income Tax comes out of your pay or pension every time you're paid. Get it right and you pay the correct amount. Get it wrong and you either lose money each month or build up a bill you didn't see coming.

If you have more than one income source, a part-time job alongside self-employment, a director's salary plus dividends, or a pension on top of work, the odds of a wrong code go up. This guide explains what each code means in the 2025/26 tax year, how to read it, and how to fix it if it's wrong.

It's written for contractors, freelancers, company directors and small business owners, but the rules apply to any employee or pensioner on PAYE.

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What is a tax code and how does it work?

A tax code is issued by HMRC and tells your employer or pension provider how much Income Tax to deduct under PAYE (Pay As You Earn).

It's built around your Personal Allowance, the amount you can earn tax-free in a year. For 2025/26 the standard Personal Allowance is £12,570. HMRC then adjusts the code for anything that changes your tax position, such as a company car, untaxed income, or tax owed from an earlier year.

The code isn't a calculation in itself. It's an instruction. Your employer applies it to each payday, so an out-of-date code means the wrong tax, payday after payday, until someone corrects it.

This matters most when you have several income streams. If you're a director taking a small salary and dividends, your salary usually carries a normal code while your dividends are taxed through Self Assessment, not PAYE. If you have a job alongside self-employment, the way your codes are split decides whether PAYE collects the right amount or leaves a gap for your tax return to mop up.

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How do you read your tax code?

Most codes are a number followed by a letter, for example 1257L.

The number is your tax-free allowance for that income, divided by 10. So 1257 means £12,570 of tax-free pay. A K code works in reverse (more on that below).

The letter describes your situation. Here's how HMRC builds a standard code:

1. Start with your Personal Allowance (£12,570 for 2025/26).
2. Add anything that increases it, such as job expenses HMRC has agreed.
3. Subtract anything that reduces it, such as the taxable value of a company car or untaxed income.
4. Divide the result by 10 to get the number.
5. Add the letter that fits your circumstances.

You can find your current code on any payslip, on your latest P60, on the coding notice (form P2) HMRC sends when your code changes, or by signing in to your Personal Tax Account on gov.uk.

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What do the common tax code letters mean?

Here are the codes you're most likely to see in 2025/26. The figures use the verified 2025/26 thresholds and assume England, Wales or Northern Ireland (Scotland is covered separately below).

A code may also carry W1, M1 or X, which means it's being used on an emergency, non-cumulative basis. The income tax bands themselves come straight from HMRC: basic rate 20%, higher rate 40% and additional rate 45% for 2025/26.

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What does 1257L mean?

1257L is the standard code for 2025/26 and the one most people have. It means you get the full Personal Allowance of £12,570 against that income.

With 1257L on your only job, you pay no tax on the first £12,570. Income above that is taxed at 20% up to £50,270, at 40% from £50,271 to £125,140, and at 45% above £125,140.

Illustrative example. Priya earns £30,000 from one job and has the code 1257L.

• Tax-free: £12,570
• Taxable: £17,430 (£30,000 − £12,570)
• Tax at 20%: £3,486 (£17,430 × 20%)

So Priya pays £3,486 in Income Tax across the year, with the right amount taken each payday.

One thing to watch: if your income goes over £100,000, your Personal Allowance is reduced by £1 for every £2 of income above £100,000, and it disappears entirely at £125,140. At that point your code typically changes to reflect a reduced or nil allowance.

The £12,570 allowance is fixed at that level for 2025/26. If you want to sense-check your own pay, our income tax calculator and take-home pay calculator work it through for you.

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What do BR, D0 and D1 mean?

These codes apply where your Personal Allowance is already used up by another income, so this source gets none of it.

• BR taxes all of the income at the basic rate of 20%.
• D0 taxes all of it at the higher rate of 40%.
• D1 taxes all of it at the additional rate of 45%.

They're normal on a second job or second pension, because your main income should already be using your allowance.

Illustrative example. Tom has a main job of £30,000 on 1257L and a second job of £10,000 on BR. The second job is taxed at a flat 20%, so £2,000 (£10,000 × 20%). His main job is taxed as normal. The split keeps the totals correct without him having to do anything at year end.

The mistake to look out for is BR on your only job. That applies 20% to every pound with no tax-free allowance, so you'd overpay. If you only have one job and it's showing BR, contact HMRC to get it corrected.

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What does a K code mean?

A K code is the one that catches people out, because it works backwards. Instead of giving you tax-free pay, it adds an amount to your taxable income.

You get a K code when something reduces your allowance below zero, for example tax owed from an earlier year, the State Pension when it's more than your remaining allowance, or benefits in kind (like a company car) worth more than the allowance.

The number still means "× 10", but it's added rather than deducted. So K500 adds £5,000 to your taxable pay for the year.

Illustrative example. A company car gives Dev a taxable benefit of £8,000, and his salary uses his full allowance. HMRC issues a K code so the £8,000 benefit is taxed through payroll. At basic rate that's £1,600 of extra tax across the year (£8,000 × 20%).

There's a built-in protection: a K code can't take more than half of your pre-tax pay or pension on any payday. If you think a K code is wrong, for example it's collecting tax you've already paid, check the P2 notice that explains it and contact HMRC.

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What does 0T mean and is it an emergency code?

0T means no Personal Allowance is applied to this income. It's often used as an emergency code when you start a new job and your employer doesn't yet have a P45 or completed starter checklist.

Unlike BR, which is a flat 20%, the 0T code spreads income across the rate bands with no allowance: 20% on the first £37,700, then 40%, then 45%. Because 0T gives no Personal Allowance, the basic-rate band starts from the first pound, so the two codes produce the same tax only up to £37,700 of income; above that, 0T moves into 40% while BR stays at a flat 20%.

If you're on 0T on your only job, earning well under £100,000, it's almost certainly wrong, because you're not getting your £12,570 allowance. The fix is usually quick: give your employer your P45, or complete the starter checklist, and the code should correct itself over the next payroll cycle or two. Any tax overpaid in-year is normally refunded through your pay once the code is right.

If the tax year has already ended before the code is fixed, HMRC will reconcile it and send a P800 calculation, and any refund follows automatically.

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What do NT, M, N and T mean?

NT (No Tax). No tax is taken from this income. It applies in specific situations rather than as a general rule, so if you see NT and aren't sure why, check the reason on your P2 notice.

M and N (Marriage Allowance). If you and your spouse or civil partner qualify, the lower earner can transfer 10% of their Personal Allowance to the higher earner. For 2025/26 that's £1,260 of allowance, which can cut the recipient's tax by up to £252 for the year.

• The person who receives the allowance gets an M code (their allowance rises to roughly £13,830, shown as 1383M).
• The person who transfers it gets an N code (their allowance falls to roughly £11,310, shown as 1131N).

It only makes sense one way round: the lower earner, who isn't using all their allowance, transfers to a basic-rate partner who can use it.

T. A T code means HMRC includes extra calculations when working out your allowance, often because of a less common combination of allowances and deductions. It's a flag that your situation is being reviewed individually, not a sign that anything is wrong.

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What are Scottish (S) and Welsh (C) tax codes?

Where you live decides which Income Tax rules apply to your earnings, and HMRC shows this with a prefix.

Scotland (S prefix), for example S1257L. Scotland sets its own Income Tax rates and bands, which differ from the rest of the UK and have more bands. The codes follow the same logic (S1257L for the standard allowance, SBR, SD0 and so on), but the rates behind them are Scottish. Because the Scottish bands aren't part of our verified UK rates table, check the current figures directly on gov.uk's Scottish Income Tax page rather than assuming they match the rest of the UK.

Wales (C prefix), for example C1257L. Welsh rates are set by the Senedd. The C prefix exists so Wales can vary its rates, and the system applies whichever Welsh rates are in force. See gov.uk's Welsh Income Tax page for the current position.

HMRC works out which prefix you get from your main residence. If you live in Scotland or Wales but your code has no prefix, that's worth querying.

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How do you check if your tax code is wrong?

A wrong code is common after any change: a new job, a second job, a company car starting or ending, or a house move across a border. Watch for these signs:

• 0T or BR on your only job when you earn under £100,000. You should usually have 1257L, and you're likely overpaying.
• 1257L on a second job. Your allowance is being given twice, so you may be underpaying and could face a bill.
• A K code for a debt you've already cleared. HMRC's records may not be up to date.
• No S or C prefix when you live in Scotland or Wales.
• A W1 or M1 suffix still showing months after you started a job.

To check it, sign in to your Personal Tax Account on gov.uk and open the tax code section. It lists every employment and pension, the code for each, and how HMRC worked it out. Compare each code against your real situation using this guide. You can also read the explanation on your latest P2 coding notice, or call the HMRC Income Tax helpline.

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What should you do about a wrong tax code?

If a code looks wrong, sort it quickly so you stop over or under-paying each payday.

1. Gather the basics. Your National Insurance number, your employer's PAYE reference (on your payslip), your current code, and why you think it's wrong.
2. Update HMRC online. The fastest route is your Personal Tax Account: tell HMRC about the change (new job, ended benefit, moved home) and they'll reissue the code and notify your employer.
3. Or call HMRC. The Income Tax helpline can review your record and issue a corrected code, then your employer is updated through the PAYE system.
4. Check the outcome. Once the code is right, any in-year overpayment is normally refunded through your pay. If the year has ended, HMRC sends a P800 reconciliation and any refund follows. If you've underpaid, HMRC will tell you what's owed and how to pay or collect it.

Penalties and interest can apply to tax that's paid late, so don't sit on a known underpayment. For the current charges, see gov.uk's guidance on Self Assessment.

Illustrative example: a contractor with a second job. Sam runs a contracting business taxed through Self Assessment and takes a part-time employed role on the side. His employer asks "is this your only job?" and, after some confusion, puts him on 1257L instead of BR. Because his allowance is already used by his contracting income, the part-time job should have been BR. On the £18,000 employment, the correct PAYE deduction is £3,600 (£18,000 × 20%, no allowance), but 1257L only collected tax on £5,430 of it, about £1,086. That leaves roughly £2,514 to settle through his tax return. Spotting this on the first payslip and asking HMRC to switch the code to BR would have collected the right tax all year and avoided the surprise at the 31 January deadline.

This is the kind of cross-income mistake we catch for clients. If you'd like a second pair of eyes on your codes, book a free 20-minute call with a Zmartly accountant and we'll review every PAYE code across your jobs, pensions and benefits, and deal with HMRC on your behalf where it needs fixing.

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How do codes change when you start or leave a job?

Most coding problems start when a job starts or ends.

Starting a job with a P45. Give your new employer the P45 from your last job. It carries your code and pay-to-date, so the right tax is applied from your first payslip.

Starting a job without a P45. Complete the starter checklist (this replaced the old P46). You pick one of three statements:

• Statement A if it's your only job and you have no other taxable income or pension.
• Statement B if it's now your only job but you've had other income since 6 April.
• Statement C if you have another job or a pension.

Be honest, because the statement drives your code. Tick A when it should be C and you'll underpay; tick C when it should be A and you'll overpay. With no P45 and no checklist, your employer has to use an emergency code until you sort it.

Leaving a job. Your employer gives you a P45. Pass parts 2 and 3 to your next employer, or keep it safe if you're not starting another job straight away, since you may be due a refund or need it for your tax return.

Codes changing in the same job. A code can change mid-year because a benefit started or stopped, your income changed, the State Pension began, or Marriage Allowance was applied. HMRC sends a P2 notice explaining the new code, so read it and check the figures fit your situation.

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