Understanding PAYE tax codes

PAYE tax codes tell you how much tax-free income an employee can have before you deduct tax. Understanding tax codes helps you process payroll correctly and answer employee queries.

Understanding PAYE tax codes

How to read and interpret PAYE tax codes for employees.

A PAYE tax code tells employers how much tax-free income an employee is entitled to before tax is deducted. It consists of numbers and letters that indicate the tax calculation method.

Standard code 2025/26: 1257L (£12,570 tax-free allowance)
Numbers meaning: Multiply by 10 to get annual tax-free amount (1257 = £12,570)
L suffix: Standard Personal Allowance applies
M suffix: Marriage Allowance - received 10% of partner's allowance
N suffix: Marriage Allowance - transferred 10% of allowance to partner
T suffix: Other calculations required (review needed)
0T code: No Personal Allowance - all earnings taxed
BR code: All income taxed at basic rate (20%) - no allowance
D0 code: All income taxed at higher rate (40%)
D1 code: All income taxed at additional rate (45%)
NT code: No tax to be deducted

Regional prefixes

S prefix: Scottish taxpayer (e.g., S1257L) - Scottish income tax rates apply
C prefix: Welsh taxpayer (e.g., C1257L) - Welsh income tax rates apply
No prefix: English or Northern Irish taxpayer - UK rates apply

Week 1/Month 1 basis (W1/M1)

If a code shows W1 or M1 (or X), tax is calculated on each pay period separately, not cumulatively. This prevents large refunds or bills when HMRC is still determining the correct code.

K codes

A K code (e.g., K475) means the employee has deductions greater than their allowance (e.g., company car benefit, unpaid tax from previous years). Tax is added to their pay for calculation purposes.

Tax codes explained

Receiving tax codes from HMRC

HMRC sends tax code notifications in several ways:

Form P9: Coding notice sent to you for existing employees
P45: Shows tax code from previous employer
Starter checklist: You determine code based on employees answers
Electronic notifications: Through your payroll software (if enabled)

Emergency tax codes

When and how to use emergency tax codes for new employees.

An emergency tax code is used when HMRC has not yet issued a tax code for an employee, or when a new starter does not provide a P45 or complete a starter checklist.

Current emergency code: 1257L W1/M1 (2025/26 tax year)
Scottish emergency code: S1257L W1/M1
Welsh emergency code: C1257L W1/M1
W1/M1 meaning: Non-cumulative - each pay period calculated separately
Standard allowance applied: Basic Personal Allowance only (no adjustments)

When emergency codes apply

New employee without P45: Did not complete starter checklist
P45 from previous employer: Shows incorrect or missing information
HMRC notification pending: Waiting for updated code from HMRC
First job in tax year: No P45 available

How emergency tax works

On W1/M1 (Week 1/Month 1) basis:

Tax is calculated on each pay period in isolation
Previous earnings in the tax year are ignored
No automatic refunds or underpayments carried forward
Once HMRC issues correct code, switch to cumulative basis

Resolving emergency tax

HMRC will usually issue the correct tax code within 2-6 weeks if:

You submitted the employee details on your FPS
The employee completed a starter checklist
The employee contacts HMRC directly to confirm their circumstances

Starter checklist statements (A, B, C)

How to determine the correct tax code for new employees without a P45.

When a new employee does not have a P45, they should complete a starter checklist (formerly P46). The statement they choose determines their initial tax code.

Statement A: First job since 6 April, no other income or pension
Statement A tax code: 1257L (cumulative) - full Personal Allowance
Statement B: Only job now, but had income/pension since 6 April
Statement B tax code: 1257L W1/M1 (non-cumulative) - emergency basis
Statement C: Has another job or pension
Statement C tax code: BR (all taxed at basic rate) - no allowance

Important considerations

Student loan: Ask if employee has a student loan and which plan type
Postgraduate loan: Separate question for postgraduate loans
Scottish/Welsh: Ask for home address to determine regional tax rates
Keep records: Retain completed starter checklists for 3 years after tax year ends

If no checklist completed

If the employee does not complete a starter checklist and has no P45, you must use:

Tax code: 0T W1/M1 (no Personal Allowance, non-cumulative)
This results in higher tax: All earnings taxed from £0
Employee should contact HMRC: To get correct code issued

Download starter checklist

Common employee questions

"Why has my tax code changed?"

HMRC adjustments for under/overpaid tax
Company car or benefits added/removed
Marriage Allowance claimed or cancelled
Second job started or stopped
State Pension started

"I think my tax code is wrong"

Direct the employee to check their Personal Tax Account on GOV.UK or call HMRC directly. You cannot change tax codes without HMRC authorisation.

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Understanding PAYE tax codes

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Common employee questions

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Receiving tax codes from HMRC

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