Understanding Your Tax Code
What is a Tax Code?
A PAYE Tax Code is issued by HMRC to ensure that taxpayers pay the right amount of tax throughout the year. It is provided to an employer or pension provider who use it to calculate how much tax to deduct from salaries or pension payments before they are made.
The basic PAYE tax code for 2026/27 is 1257L. This gives the taxpayer a personal allowance of £12,570 for the year. This is the most common tax code for individuals with only one source of employment or pension income.
What Tax Code Should I Use for New Employees?
When taking on a new employee, you should normally use the information from their P45 to establish the correct PAYE tax code. If they do not have a P45, or further information is required, ask them to complete HMRC's 'Starter Checklist for PAYE'. This provides the information needed to determine the appropriate tax code and starter declaration for their first payment.
What is the Emergency Tax Code?
For the 2026/27 tax year, the standard emergency tax code is 1257L. An emergency tax code may be operated on a non-cumulative basis and shown with W1, M1, X or NONCUM, depending on the payroll software and pay frequency.
Normally, PAYE takes account of an employee's total pay and tax so far in the tax year. When a tax code is operated on an emergency basis, tax is calculated using only the employee's pay for the current pay period.
An emergency tax code may be used when an employer does not yet have sufficient information about an employee's previous pay and tax, such as when somebody starts a new job without a P45. It may also be used temporarily in some other circumstances until HMRC has the information needed to issue the appropriate tax code.
Emergency tax codes are often temporary. HMRC will normally update the employee's tax code once it has the necessary information.
What Other Letters Could Be Included in a Tax Code?
'BR' means that all income from this employment or pension is taxed at the basic rate. It is commonly used for a second job or pension.
'D0' means that all income from this employment or pension is taxed a the higher rate. It is commonly used for a second job or pension.
'D1' means that all income from this employment or pension is taxed at the additional rate. It is commonly used for a second job or pension.
'K' is issued where deductions included in the tax code, such as taxable benefits, State Pension or tax owed from previous years, are greater than the employee's available Personal Allowance.
'NT' means that no tax is deducted from this source of income. It is only used in specific circumstances.
'M' indicates that the individual has received a transfer of 10% of their spouse or civil partner's Personal Allowance under Marriage Allowance. 'N' indicates that they have transferred 10% of the Personal Allowance to their spouse of civil partner.