Payroll operations

Understanding PAYE tax codes

How to read and apply PAYE tax codes for your employees.

UK-wide
Guide summary

Check and apply the correct PAYE tax code for each employee. Use the code HMRC sends you to deduct the right tax. Ask new employees for a P45 or starter checklist. If unsure, use emergency code 1257L W1/M1.

  • Use the tax code HMRC sends you for each employee
  • Multiply the numbers by 10 to get tax-free amount (1257 = £12,570)
  • Ask new employees for a P45 or starter checklist
  • Emergency tax code is 1257L W1/M1 for new starters
  • BR means tax all income at 20% with no allowance
  • D0 means tax all income at 40%
  • Scottish codes start with S (e.g. S1257L)
  • Welsh codes start with C (e.g. C1257L)
  • Keep records of tax codes for 3 years
  • Update tax codes when HMRC notifies changes
On this page
UK-wide

Related guides in Tax & Finance

Pay PAYE to HMRC

How and when to pay your PAYE tax and National Insurance to HMRC.

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.

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)

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.