Payroll operations UK-wide

Understanding PAYE tax codes

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

Guide summary

Use the PAYE tax code on each employee's HMRC notice to work out how much tax-free pay they get before deductions. Apply the correct code in your payroll software each pay period. Check the letter (like L, M, T) and number (1257 means £12,570 tax-free) to make sure you deduct the right amount.

  • Use the tax code HMRC gives you – do not change it yourself
  • Multiply the numbers in the code by 10 to get the yearly tax-free amount
  • Apply code 1257L for most employees with the full Personal Allowance
  • Use code BR if an employee has a second job and gets no allowance
  • Use code 0T with W1/M1 if a new starter gives no P45 or checklist
  • Add prefix S for Scottish taxpayers, C for Welsh taxpayers
  • Apply W1 or M1 for emergency codes – tax per pay period only
  • Keep completed starter checklists for 3 years after the tax year ends
  • Send employee details on your Full Payment Submission to get the right code
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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.