Tax codes explained: what each letter means

Tax codes tell your payroll software how much income tax to deduct from an employee's wages. HMRC issues a tax code for each employee, and applying the wrong code results in the employee paying too much or too little tax. Understanding what the numbers and letters in a tax code mean — and knowing when to update or query a code — is a fundamental payroll skill.

The number in a tax code represents the employee's tax-free allowance for the year, divided by 10. The standard personal allowance for 2025/26 is £12,570, which gives the tax code 1257. A code of 1257L means the employee has £12,570 of tax-free income and is entitled to the standard personal allowance. If the personal allowance is reduced — because the employee earns over £100,000, for example — the number will be smaller.

The letter suffix tells you how to apply the code. Here are the most common:

L is the most common suffix. It simply indicates the employee is entitled to the standard tax-free personal allowance. 1257L is the standard code for most employees.

M indicates the employee has received 10% of their spouse or civil partner's personal allowance through the Marriage Allowance. Their code will be higher than 1257 by 125 points — so 1382M in 2025/26.

N is the reverse: the employee has transferred 10% of their allowance to their spouse or civil partner. Their code will be lower by 125 — so 1132N.

T indicates HMRC wants to review the code at the end of the tax year, often because of complex circumstances. Apply the code as normal.

BR stands for Basic Rate. All income from this employment is taxed at the basic rate (currently 20%), with no personal allowance. This is often used for a second job where the allowance has already been used against primary income.

D0 means all income is taxed at the higher rate (40%), no personal allowance. Also used for secondary employment.

D1 means all income is taxed at the additional rate (45%), no personal allowance.

0T means no personal allowance is applied and income is taxed at each of the appropriate rates in turn. Often used as an emergency code or where personal allowance has been fully used.

K codes are unusual — they apply where the employee has a negative personal allowance, typically because they have deductions or benefits that exceed their personal allowance. A K code increases the amount of tax deducted rather than reducing it.

NT means no tax is to be deducted at all. Rare — typically used for situations where HMRC has explicitly agreed no deduction is required.

W1 or M1 suffixes indicate a "week 1" or "month 1" basis — non-cumulative tax calculation. Each pay period is treated in isolation rather than on a cumulative year-to-date basis. This is an emergency measure used when HMRC has not yet confirmed the correct code.

S prefix indicates the employee is subject to Scottish income tax rates (Scotland has different bands and rates from the rest of the UK). A Scottish employee's code will begin with S — for example, S1257L. See our guide on Scottish and Welsh tax rates for the current rate differences.

C prefix indicates Welsh income tax rates (Wales currently matches UK rates, but the C prefix is still applied).

When you receive a P45 from a new employee, use the tax code shown on it. If no P45 is available, use a starter declaration to determine the emergency code. If HMRC issues a P6 or P9 notice to change a code, apply the new code from the next pay run.

See our PAYE explained guide for how tax codes fit into the broader payroll calculation.

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