What Is a Tax Code and What Does It Mean?
- Kyle Randall
- Dec 17, 2025
- 3 min read
Understanding Your UK Tax Code
Your tax code plays a key role in how much tax you pay — yet many people don’t know what it means or whether it’s correct.
If your tax code is wrong, you could be overpaying or underpaying tax without realising. In this guide, we explain what a tax code is, how it works, what the letters and numbers mean, and what to do if yours looks wrong.
What Is a Tax Code?
A tax code is used by HMRC to tell your employer or pension provider how much Income Tax to deduct from your pay or pension.
It reflects:
Your personal tax allowance
Any additional income
Benefits in kind
Tax you owe from previous years
Your tax code directly affects your take-home pay.
Where Can I Find My Tax Code?
You can usually find your tax code on:
Your payslip
Your P60
Your P45
Letters from HMRC
Your HMRC online account
If you have more than one job or pension, you may have multiple tax codes.
What Do the Numbers in a Tax Code Mean?
The numbers in your tax code show how much income you can earn before tax is deducted.
For example:1257L
The number 1257 means you’re entitled to £12,570 tax-free income
HMRC removes the last digit to create the code
This is the most common tax code for people entitled to the full personal allowance.
What Do the Letters in a Tax Code Mean?
Here are some common letters you may see:
L – You’re entitled to the standard personal allowance
M – You’ve received part of your partner’s allowance (Marriage Allowance)
N – You’ve transferred part of your allowance to your partner
T – HMRC needs to review your situation
BR – All income is taxed at the basic rate
D0 / D1 – Income taxed at higher or additional rates
K – You have deductions that exceed your allowance
If you see an unfamiliar letter, it’s worth checking it.
Why Your Tax Code Might Be Wrong
Your tax code may be incorrect if you:
Change jobs
Start or stop a second job
Receive benefits in kind (e.g. company car)
Have multiple income sources
Underpaid tax previously
Become self-employed
Incorrect tax codes are surprisingly common.
What Happens If Your Tax Code Is Incorrect?
If your tax code is wrong, you may:
Overpay tax and lose cash flow
Underpay tax and receive a future bill
Accumulate HMRC adjustments without realising
Fixing your tax code early prevents bigger problems later.
How to Check or Update Your Tax Code
You can check your tax code directly with HMRC using your online account.
👉 Official HMRC guidance is available here:https://www.gov.uk/tax-codes
If your tax code is wrong, HMRC can usually update it quickly.
Do Self-Employed People Have a Tax Code?
If you’re fully self-employed, you won’t usually have a tax code because tax isn’t deducted at source.
Instead, tax is calculated through a Self Assessment tax return.
You can learn more about how this works on our Self Assessment services page.
How VIP Accounting Ltd Can Help
At VIP Accounting Ltd, we help individuals and business owners across Benfleet, Essex and the UK with:
Reviewing tax codes
Identifying overpaid or underpaid tax
Correcting HMRC errors
Filing Self Assessment returns
Ongoing tax planning and compliance
If you’re unsure whether your tax code is correct, you can speak to our team via our contact page: https://www.vipaccounting.co.uk/contact-us
FAQs
How often does my tax code change?
It can change at any time if your income or circumstances change.
Can I have more than one tax code?
Yes — if you have multiple jobs or pensions.
What does BR mean on my tax code?
It means all income is taxed at the basic rate, with no personal allowance applied.
Should I check my tax code regularly?
Yes — especially after job changes or income changes.
Who Wrote This Article
Kyle Randall, Founder of VIP Accounting Ltd, provides clear, practical guidance to help individuals and business owners understand UK tax rules and stay compliant with HMRC.
VIP Accounting Ltd is a strategic accounting and tax advisory firm based in Benfleet, Essex, supporting individuals and businesses across the UK with tax planning, Self Assessment, and full HMRC compliance.
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