Quick guide to understanding your tax code

What is a tax code?

A tax code tells your employer or pension provider how much income tax to deduct from your pay or pension.

Typical format

A tax code is usually a number followed by a letter, like 1257L.

• Number (e.g., 1257):
Multiply it by 10 to get your tax-free allowance.
  • Example: 1257 × 10 = £12,570 (the standard personal allowance for most people in 2024/25).
• Letter (e.g., L):
Indicates your tax situation:
  • L – You’re entitled to the standard tax-free Personal Allowance.
  • M – You receive 10% of your partner’s allowance (Marriage Allowance).
  • N – You’ve transferred 10% of your allowance to your partner.
  • BR – All income is taxed at the basic rate (20%), no allowance.
  • D0 – All income taxed at higher rate (40%).
  • D1 – All income taxed at additional rate (45%).
  • K – You have untaxed income that’s more than your allowance (e.g., benefits in kind).

How to check your tax code

1. Payslip – It’s usually printed on each one.
2. HMRC’s PAYE Coding Notice – Sent by letter or available via your Personal Tax Account. (See later for how to set one up – there are really useful for checking what National Insurance contributions you have made towards your state pension as well – More on National Insurance in the next issue.
3. Tax Code Checker – Use HMRC’s online tool to check what your tax code means.

Why your tax code might be wrong

• You started a new job.
• You have more than one job or pension.
• You get company benefits (e.g. car, health insurance).
• You claim Marriage Allowance.
• HMRC made an error – The most common reason

What to do if it looks wrong

Contact HMRC at 0300 200 3300 or via your online tax account to request a correction. If you are not sure what to do then call Paul (our finance director).

Step-by-step: registering for a personal tax account

1. Go to HMRC’s website.
2. Click on “Start now”.
You’ll be taken to the Government Gateway login page.
3. Sign in or create a Government Gateway ID. If you already have one, log in. If not, click “Create sign in details” and follow the steps to set up a Government Gateway account.
4. Provide Personal Information:
HMRC will ask for:
   • National insurance number
   • Date of birth
   • Details from a payslip, P60, or passport to verify your identity.
5. Set up recovery options:
Add a phone number or email for two-factor authentication (security codes).
6. Access your account:
Once verified, you can view:
   • Your tax code
   • PAYE income
   • NI contributions
   • State pension forecast
   • Self Assessment (if registered)

If you have issues verifying your identity, HMRC may guide you to use other forms of ID or postal confirmation.