UK tax codes & what you need to know as an HR professional

In 2024, workers overpaid HRMC by a hefty estimated £5.8 billion due to incorrect tax codes. As an employer, or payroll professional, or HR team member, it may also be your job to make sure your employees are paying the correct tax on top of managing their pay. The day-to-day of this role may include entering tax codes into your payroll system and paying out the right amount of tax to HMRC.

But this isn’t just about data entry. Understanding tax codes is important if you want to avoid underpayment or overpayment to HMRC, both of which can take time to rectify and could be a problem for your staff. They may be saddled with a higher monthly tax than they expected or could end up paying a costly bill down the line.

In this guide, we’ll walk through UK tax codes in detail so you can understand the different types and designations and avoid costly underpayment and unnecessary overpayment.

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What is a tax code?

A tax code tells an employer how much tax to deduct from an employee’s pay. It’s made up of a mix of letters and numbers (like 1257L) which reflect things like earnings, employment status and other circumstances.

Using the code, employers can see the amount of tax-free earnings the employee is entitled to in each pay period and calculate tax. However, it’s the employee’s job to make sure the tax code is correct—not the employers.

What do tax code letters mean?

The letters in a UK tax code designate the amount of tax that should be taken from an employee’s net pay, reflecting things like location (i.e. England, Wales or Scotland), second jobs or pensions, or personal allowance transfers.

Here’s the current list for 2025–26.

UK tax code letters

Letter

Meaning

Tax is deducted from all income, with no personal allowance. You may use this when an employee hasn’t given you a P45, or enough details to work out their tax code. Sometimes, it might be when their allowance has been used up.

Tax is deducted at the basic rate, from all income. This is usually used for a second job or pension.

Tax is deducted from income in Welsh tax bands, for employees whose primary home is in Wales.

C0T

Tax is deducted from all income, with no personal allowance. Common for employees who live mainly in Wales, who don’t have a P45 or enough details for their tax code, or when their Personal Allowance has been used up.

CBR

Tax is deducted at the basic rate in Wales, from all income. This is usually used for a second job or pension.

CD0

Tax is deducted from all income at the Welsh higher rate. Usually used for a second job or pension.

CD1

Tax is deducted from all income at the Welsh additional rate. Usually used for a second job or pension.

CD1

Tax is deducted at the higher rate, from all income. This is usually used for a second job or pension.

Tax is deducted at the additional rate, from all income. This is usually used for a second job or pension.

Tax is deducted at basic, higher and additional rates, depending on the taxable income. This is designed for employees entitled to standard tax-free Personal Allowance.

Tax is deducted at basic, higher and additional rates, depending on the taxable income. This is designed for an employee whose spouse or civil partners have transferred some of their tax-free Personal Allowance.

Tax is deducted at basic, higher and additional rates, depending on the taxable income. This is designed for employees who have transferred some of their tax-free Personal Allowance to a spouse of civil partner.

No tax is deducted. This is for specific cases where an employee is not subject to PAYE.

Tax is deducted from income in Scottish tax bands, for employees whose primary home is in Scotland.

S0T

Tax is deducted from all income, with no personal allowance. Common for employees who live mainly in Scotland, who don’t have a P45 or enough details for their tax code, or when their Personal Allowance has been used up.

SBR

Tax is deducted at the basic rate in Scotland, from all income. This is usually used for a second job or pension.

SD0

Tax is deducted from all income at the Scottish intermediate rate. Usually used for a second job or pension.

SD1

Tax is deducted from all income at the Scottish higher rate. Usually used for a second job or pension.

SD2

Tax is deducted at the Scottish advanced rate, from all income. This is usually used for a second job or pension.

SD3

Tax is deducted at the Scottish top rate, from all income. This is usually used for a second job or pension.

Tax is deducted at basic, higher and additional rates, depending on the taxable income. Designed for when HMRC needs additional info.

When deductions for company benefits, state pension or tax are greater than the personal allowance.

W1, M1 or X

Emergency tax codes that often follow 1275L if an employee doesn’t have a P45.

What do tax code numbers mean?

The numbers in a UK tax code show the tax-free income an employee is entitled to that year, when the number is multiplied by 10. So, if we take the numbers in L1275, we get £12,750, which is current tax-free personal allowance. From there, you can work out the taxable income.

When the letter K appears (see above) things work a bit differently. Here, you’ll need to multiply the number by 10 and then add that to their taxable income.

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What is the most common tax code for 2025?

The most common UK tax code for 2025 is 1275L. This is used for people with one job, no unpaid tax, taxable benefits, or untaxed income.

Where do you find an employee’s tax code?

You’ll normally find an employee’s tax code on their P45. This document is used to show they are no longer working for their previous employer and displays how much tax they’ve paid that year. You’ll need to enter this code at the start of a new tax year.

Will I be updated about changes in tax code?

If tax codes change throughout the year—reflecting things like second jobs, or other changes in circumstances—then you’ll need to update employee info swiftly. HMRC should let you know via email, or via the PAYE online portal. The code should then be used year to year, unless HMRC advises a further change.

What is an emergency tax code?

An emergency tax code is often used when a new employee doesn’t have a P45 and the status of their tax payments prior to their employment with you is unknown for that year.

Some of the most common ones are 1257L W1 or 1257L M. The W and M letters indicate that either a week or month’s proportion of the tax-free allowance is given against the week/month’s pay. This means that the pay period in question is dealt with in isolation, rather than on a cumulative basis.

UK tax codes FAQs

Tax codes have a big impact on employees’ pay packets so it’s important to get them right. Here are a few final common issues that it could be useful to understand.

What happens if I use the wrong tax code?

If you get a tax code wrong, your employees may end up underpaying or overpaying tax. HMRC place the burden of this on the employer, not the employee. Though it’s worth noting that you may have grounds for a right of recovery from the employee. Either way, it will may be a tricky if not costly issue, so it’s worth taking particular care to get it right.

Why do tax codes change?

Tax codes could change for several reasons reflecting personal circumstances, employment details or other factors. For example, an employee who moves home between Scotland and Wales would change tax code from S to C. Or, if an employee has transferred their personal allowance to their spouse or civil partner, their code would change too.

What does the L stand for on a tax code?

The L at the end of a tax code means that the employee is entitled to the basic personal allowance. Currently, this stands at £12,750, which is also reflected in the common numerical code 1275.

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