UK Tax Codes Explained: What Yours Means and How It Affects Your Pay

Understanding Common Tax Codes in the UK

The most common tax code for 2025/26 is 1257L. This means you can earn £12,570 before paying income tax. Simple enough, right? But there are plenty of other codes, and not all are as generous.

Let’s look ata few you might spot:

• 1257L: Standard tax code — full personal allowance. Ideal for most people with one job.
• BR: Basic Rate. All your income is taxed at 20%. Often used for second jobs or pensions.
• D0: Higher Rate. You're taxed at 40% on all income. Ouch.
• D1: Additional Rate. A brutal 45% across the board.

We once helped a client with two jobs. Her second employer applied a D0 code instead of BR, and she ended up overpaying by £1,200. Fortunately, we got it refunded. Always check which code is used for each job.

Then there’s 0T — a code that gives you no personal allowance at all. HMRC uses it if they don’t have enough info about you, like if you’ve just started a new job and your employer didn’t get a P45.

What Happens When You Owe HMRC: The K Code

A K tax code means your personal allowance goes into negative territory. It usually means you owe tax from a previous year or receive benefits like a company car. One client had a K code from a car he had years ago! HMRC hadn't been updated, and he was overpaying until we helped sort it.

Emergency Codes: W1 and M1

W1 and M1 mean Week 1 and Month 1. These are emergency tax codes — temporary fixes used when HMRC hasn’t got your full earnings info yet. They don’t take your total annual income into account, so the tax might be off until things are updated.

How Tax Codes Are Calculated

Your tax code factors in:

• Your personal allowance
• Any job perks (like health insurance or a company car)
• Past underpayments
• Deductions or additions like Marriage Allowance

HMRC uses all this to assign your tax code. It’s meant to reflect how much of your income is taxable.

Codes can and do change. A mid-year change might mean you’ve started a new job or pension. Sometimes it's just HMRC catching up. Either way, don’t assume it’s wrong — but do double-check.

When Your Tax Code Isn’t 1257L

If your taxcode has a T suffix, HMRC wants to review your situation yearly. Itusually means there’s some complexity they’re keeping an eye on.

Sometimes, codes can change without warning. They’re supposed to notify you, but things fall through the cracks. Best tip? Set up a Personal Tax Account. It’s your dashboard to everything HMRC knows about you.

If you and your partner claim Marriage Allowance, your codes will also change. One gets a lower allowance, the other gets a boost — nothing to panic about.

What If You’ve Paid Too Much (Or Too Little) Tax?

You can check for refunds by logging into your HMRC account and looking for a P800 form. If HMRC owes you, you’ll see it there. Online refunds are usually quick —5 working days. Cheques? Slower.

But not all refunds come automatically. If you’ve switched jobs or juggled multiple incomes, you might have to request it yourself.

Underpayments are flagged with a P800 or Simple Assessment letter. Don’t ignore these — they get more expensive with time. If you owe, you can usually arrange a Time to Pay plan, splitting it into manageable monthly payments.

If HMRC overpays you? They’ll claw it back, often by adjusting your future tax codes.

Tax Codes for Multiple Jobs or Retirement

If you have more than one job:

• Your main job should use 1257L.
• Your second job usually gets the BR code (20% flat rate).

Want to split your allowance differently? You can request this from HMRC. It might save you money.

Pensions follow the same tax rules as jobs. Your provider will use a tax code based on your total income. Even your State Pension is taxable, though it's not taxed at source. HMRC adjusts your other codes to collect what’s due.

When you retire, your tax code adjusts to reflect your pension income. You still get your personal allowance. However, once you hit State Pension age, you stop paying National Insurance — though your employer continues paying it.

National Insurance Explained

There are several classes:

• Class 1: Employees
• Class 2: Flat-rate for self-employed
• Class 3: Voluntary contributions (fill gaps)
• Class 4: Profit-based for self-employed

You can check your NI record online and even topup years you’ve missed — usually up to 6 years back. It’s worth doing. You need 35 qualifying years for the full State Pension.

Self-Assessment and HMRC Penalties

You need to file a Self Assessment tax return if you’re self-employed, earn over £100,000, or have untaxed income like rent or dividends.

Miss the deadline and you’ll get a £100 fine straight away. The longer you delay, the more it costs.

Made a mistake? You can fix it online within 12 months. HMRC may still fine you, but if you explain and act quickly, penalties are usually lower.

When HMRC Investigates

You’ll know — they’ll write or call. Signs include delays in refunds or requests for documents.

Investigations can be triggered by big expenses, inconsistent income, or even anonymous tips. HMRC uses data analytics to find red flags.

If you disagree with a decision, you can appeal. First to HMRC, then to a tax tribunal if needed.

In serious cases, they can take you to court, seize assets, or access your savings. Platforms like PayPal and Revolut now share data with HMRC, and international banks in over 100 countries report under the Common Reporting Standard.

Have undeclared rental income? The Let Property Campaign lets you come clean with lighter penalties.

Final Thoughts

Tax codes may look like a bunch of random letters and numbers. But they impact every payslip you get and every penny you take home.

If you ever feel unsure, check with your accountant. Or log into your HMRC account and look around. The more you know, the more money stays in your pocket.

And hey, if something doesn’t feel right? It probably isn’t. Ask. Check. Question. Your payslip isn’t just paper. It’s your money.