HMRC PAYE Tax Codes Guide 2025: Everything You Need to Know About UK Tax Codes

Introduction to PAYE Tax Codes

Understanding your PAYE tax code is crucial for ensuring you pay the correct amount of income tax through the Pay As You Earn (PAYE) system. In 2025, with over 30 million UK employees having their tax deducted through PAYE, tax codes remain the backbone of the UK's income tax collection system.

Your tax code determines how much tax-free income you're entitled to each year and directly impacts your take-home pay. With changes to tax codes affecting millions of workers each year, and recent updates for the 2025/26 tax year, it's more important than ever to understand what your tax code means and how it affects your finances.

This comprehensive guide covers everything you need to know about HMRC PAYE tax codes, from basic concepts to complex situations, with practical examples and actionable advice for both employees and employers.

1. Understanding PAYE Tax Code Basics

1.1 What is a PAYE Tax Code?

A PAYE tax code is a combination of numbers and letters that tells your employer how much tax to deduct from your salary before paying you. The code is used to calculate your tax-free personal allowance and determine the correct amount of income tax to deduct from each pay period.

Tax codes are essential because they:

• Determine your tax-free personal allowance
• Calculate the correct amount of tax to deduct
• Account for benefits, allowances, and other adjustments
• Ensure you pay the right amount of tax throughout the year

1.2 How PAYE Tax Codes Work

The PAYE system works by spreading your annual tax liability across your pay periods. Your tax code tells your employer's payroll system how much of your pay should be tax-free each period, with the remainder subject to income tax at the appropriate rates.

1.3 How Tax Codes Are Calculated

HMRC calculates your tax code by:

1. Starting with your personal allowance (£12,570 for 2025/26)
2. Adding any other allowances you're entitled to
3. Subtracting any benefits, unpaid tax, or other deductions
4. Removing the last digit and adding the appropriate letter

1.4 Who Sets Your Tax Code?

HMRC sets your tax code based on information from:

• Your previous employer
• Benefit providers
• Your Self Assessment tax return
• Information you provide directly to HMRC
• Third-party data sources

Your employer receives your tax code from HMRC and must use it to calculate your tax deductions. Employers cannot change tax codes without instruction from HMRC.

1.5 When Tax Codes Change

Tax codes typically change when:

• The new tax year begins (6 April each year)
• Your personal circumstances change
• You start or leave a job
• You receive new benefits or allowances
• HMRC identifies an error in your previous tax payments
• You get married or enter a civil partnership

2. Standard Tax Codes Explained

2.1 The Basic 1257L Tax Code

The most common tax code for 2025/26 is 1257L. This code applies to employees who:

• Are entitled to the standard personal allowance
• Have one job or pension
• Don't receive any taxable benefits
• Haven't transferred or received Marriage Allowance

2.2 Common Tax Code Letters

Different letters indicate various situations:

Letter	Meaning	Example
L	Standard personal allowance	1257L
M	Marriage Allowance received	1507M
N	Marriage Allowance transferred	1007N
P	Age-related allowance (65-74)	1257P
Y	Age-related allowance (75+)	1257Y
T	HMRC needs to review	1257T

2.3 Tax Code Numbers

The numbers in your tax code represent your tax-free allowance with the last digit removed:

• 1257 = £12,570 allowance
• 1000 = £10,000 allowance
• 0 = No tax-free allowance

3. Emergency Tax Codes

3.1 What Are Emergency Tax Codes?

Emergency tax codes are temporary codes used when HMRC doesn't have enough information to issue a proper tax code. They ensure you pay some tax while your correct code is determined.

Emergency codes assume you're only entitled to the basic personal allowance and don't account for other allowances or reliefs you might be entitled to.

3.2 Common Emergency Codes (W1, M1, X)

3.3 When Emergency Codes Are Used

Emergency codes are typically applied when:

• You start a new job without a P45
• You return to work after a period of unemployment
• HMRC doesn't have current information about your circumstances
• There's a delay in processing your tax code
• You're paid through a payroll for the first time

3.4 How to Get Off Emergency Tax

To move from an emergency code to your correct tax code:

1. Provide your P45 to your new employer
2. Complete a starter checklist if you don't have a P45
3. Contact HMRC if the emergency code persists
4. Ensure your employer has submitted your employment details to HMRC

4. Special Tax Codes

4.1 K Tax Codes

K codes are used when your deductions exceed your personal allowance. This happens when the value of your benefits, state pension, or unpaid tax from previous years is greater than your tax-free allowance.

4.2 BR Tax Codes

BR stands for "Basic Rate" and means all income from this source is taxed at 20% with no personal allowance applied.

4.3 D0 and D1 Tax Codes

4.4 NT Tax Codes

NT stands for "No Tax" and means no tax is deducted from this income source.

4.5 T Tax Codes

T codes indicate that HMRC needs to review your tax code and may be used when:

• Your tax situation is complex
• There are items in your tax code that need special treatment
• HMRC is calculating your code manually

5. Tax Code Letters and Their Meanings

5.1 Letter L - Standard Personal Allowance

The letter L indicates you're entitled to the standard personal allowance of £12,570 for 2025/26. This is the most common tax code letter and applies to most employees.

5.2 Letter M - Marriage Allowance Received

The letter M means you've received Marriage Allowance from your spouse or civil partner. This increases your personal allowance by £1,260 (10% of the basic personal allowance).

5.3 Letter N - Marriage Allowance Transferred

The letter N indicates you've transferred part of your personal allowance to your spouse or civil partner, reducing your allowance by £1,260.

5.4 Letter P - Age-Related Allowance

The letter P was historically used for people aged 65-74 who were entitled to higher personal allowances. These allowances have been frozen and are being phased out.

5.5 Letter Y - Born Before 6 April 1938

The letter Y was used for people born before 6 April 1938 who received the highest age-related allowance. Like P codes, these are being phased out.

6. Multiple Jobs and Tax Codes

6.1 How Tax Codes Work with Multiple Jobs

When you have multiple jobs, your personal allowance is usually allocated to your main job, while other jobs receive tax codes that tax all income.

6.2 Primary and Secondary Employment

Your primary employment is usually:

• Your highest-paying job
• The job you started first
• The job you designate as primary

Secondary employments typically receive BR, D0, or D1 codes depending on your total income level.

6.3 Tax Code Allocation

HMRC can split your personal allowance between jobs if it's more beneficial. You can request this by contacting HMRC and providing details of both employments.

6.4 Common Issues with Multiple Jobs

Common problems with multiple job tax codes include:

• Overpaying tax when BR codes are applied to low-paid second jobs
• Underpaying tax when total income pushes you into higher tax brackets
• Incorrect allocation of personal allowance to the wrong job
• Delayed adjustments when tax codes aren't updated after job changes

7. Tax Code Deductions and Adjustments

7.1 Company Benefits

Company benefits reduce your tax-free allowance and are reflected in your tax code. Common benefits include:

Benefit	How It Affects Tax Code	Example Impact
Company Car	Value added to taxable income	£3,000 benefit = 300 reduction in code
Private Medical Insurance	Premium value reduces allowance	£500 premium = 50 reduction in code
Fuel Benefit	Fixed amount based on car's CO2	Could reduce code by 200-500
Accommodation	Annual value reduces allowance	£2,000 value = 200 reduction in code

7.2 Underpaid Tax from Previous Years

If you've underpaid tax in previous years, HMRC may collect it through your tax code by reducing your personal allowance, spreading the underpayment across the current tax year, and limiting collection to no more than your expected tax liability.

7.3 State Pension Adjustments

If you receive State Pension, it affects your tax code because State Pension is taxable but has no tax deducted at source, your tax code is adjusted to collect tax on State Pension through PAYE, and this typically results in a K code or reduced allowance.

7.4 Other Income Adjustments

Other income sources that affect your tax code include rental income where net profit reduces your allowance, investment income where dividends and interest may be collected through PAYE, freelance income where estimated profits can be collected through tax code, and benefits in kind where non-cash benefits reduce your allowance.

8. How to Check and Understand Your Tax Code

8.1 Where to Find Your Tax Code

You can find your tax code on your payslip (usually shown prominently on monthly/weekly payslips), your P60 (annual summary provided by your employer), tax code notice (letter from HMRC form P2), HMRC online (personal tax account at gov.uk), and the HMRC app (mobile app for checking tax information).

8.2 Reading Your Tax Code Notice

Your tax code notice (P2) contains your current tax code, breakdown of allowances and deductions, explanation of any changes, and what to do if you think it's wrong.

8.3 Understanding Your Payslip

Your payslip shows your tax code (current code being used), taxable pay (pay subject to tax this period), tax to date (cumulative tax paid this tax year), and National Insurance (separate from income tax).

8.4 Using HMRC Online Services

HMRC's online services allow you to view your current tax code, see breakdown of allowances and deductions, check your tax calculation, report changes in circumstances, and contact HMRC about tax code issues.

9. Common Tax Code Problems

9.1 Incorrect Tax Code

Signs your tax code might be wrong include sudden change in take-home pay, tax code doesn't match your circumstances, you're paying too much or too little tax, benefits not reflected in your code, or Marriage Allowance not applied correctly.

9.2 Emergency Tax Code Issues

Problems with emergency tax codes include prolonged use (staying on emergency code for months), overpayment (paying more tax than necessary), no cumulative relief (not getting benefit of annual allowance), and employer confusion (incorrect application of emergency codes).

9.3 Overpaid or Underpaid Tax

Overpaid tax is usually refunded automatically through PAYE, you can claim refund directly from HMRC, or it may be adjusted in future tax codes. Underpaid tax is collected through adjusted tax code, may result in reduced take-home pay, and you can request payment plan for large amounts.

9.4 Employer Errors

Common employer mistakes include using incorrect tax code, not updating when HMRC issues new code, applying emergency codes incorrectly, and payroll system errors.

10. How to Change Your Tax Code

10.1 When to Contact HMRC

Contact HMRC to change your tax code when your circumstances change, you start receiving new benefits, you get married or divorced, you believe your code is wrong, or you want to claim Marriage Allowance.

10.2 Information You'll Need

When contacting HMRC, have ready your National Insurance number, details of your employment, information about benefits received, evidence of changed circumstances, and previous tax code notices.

10.3 How to Appeal a Tax Code

If you disagree with your tax code, contact HMRC within 30 days of receiving your code, explain why you think the code is wrong, provide evidence to support your case, request a review if not satisfied with initial response, and appeal to tax tribunal as last resort.

10.4 Getting Refunds

Tax refunds can be obtained through automatic adjustment in next payroll run, direct refund by cheque or bank transfer from HMRC, P800 calculation after tax year end, or Self Assessment if you complete a tax return.

11. Tax Codes for Different Situations

11.1 New Employees

New employees with a P45 continue with the tax code from their previous employer. Those without a P45 receive emergency tax code until HMRC issues correct code. First job holders typically get standard 1257L code. Those returning to work may require new tax code from HMRC.

11.2 Students and Part-Time Workers

Students and part-time workers should ensure they receive full personal allowance, understand they may not pay tax if earnings are low, know they can claim refunds for overpaid tax, and consider impact of multiple part-time jobs.

11.3 Pensioners

Pensioners face unique tax code situations where State Pension is taxable but no tax deducted at source, private pensions have tax deducted through PAYE, age-related allowances are being phased out, and K codes are common due to State Pension.

11.4 Directors and High Earners

Directors and high earners may have complex tax codes due to multiple income sources, benefit adjustments from expensive company benefits, higher rate implications with D0 or D1 codes for additional income, and annual allowance may be reduced for very high earners.

12. Employer Responsibilities

12.1 Using Employee Tax Codes

Employers must use the tax code provided by HMRC, apply emergency codes when necessary, not change codes without HMRC instruction, and ensure payroll systems are updated correctly.

12.2 Updating Tax Codes

When HMRC issues new tax codes, employers must update payroll systems promptly, apply changes from the specified date, make cumulative adjustments if required, and inform employees of changes.

12.3 HMRC Notifications

HMRC notifies employers of tax code changes through online notifications via real-time information system, P6 forms (paper notifications), P9 forms (special tax code instructions), and emergency procedures when immediate action is needed.

12.4 Record Keeping

Employers must maintain records of tax codes used for each employee, dates when codes were changed, HMRC notifications received, and payroll calculations and adjustments.

Record Keeping

Employers must maintain records of:

• Tax codes used for each employee
• Dates when codes were changed
• HMRC notifications received
• Payroll calculations and adjustments

Conclusion