If you’ve ever glanced at your payslip and wondered what your tax code means, you’re not alone. That mix of numbers and letters—like 1257L or BR—might look confusing at first, but it plays a key role in determining how much tax you pay.
At SA Lee Accountancy Ltd, we believe it’s important to understand your tax code. Why? Because it helps you ensure you’re paying the correct amount of tax—and not more than you need to.
What Is a Tax Code?
Your tax code is issued by HMRC and tells your employer or pension provider how much income tax to deduct from your pay or pension. It reflects your personal allowance, any benefits you receive, and any previous under- or overpayments.
Let’s break down some of the most common codes and what they mean:
Common Tax Codes Explained:
🔹 1257L – The most common tax code. It means you’re entitled to the standard personal allowance of £12,570 for the current tax year. You can earn this amount tax-free.
🔹 BR – Stands for Basic Rate. All your income is taxed at 20%, with no personal allowance. This code is typically used for second jobs or pensions.
🔹 D0 – Higher Rate code. All income is taxed at 40%, with no personal allowance applied.
🔹 D1 – Additional Rate code. All income is taxed at 45%, again with no personal allowance.
🔹 K – This code indicates that you owe tax from a previous tax year or receive taxable benefits, like a company car, which increase your taxable income.
🔹 M – You’re receiving 10% of your partner’s personal allowance through the Marriage Allowance.
🔹 N – You’ve transferred 10% of your personal allowance to your partner.
🔹 NT – No Tax deducted. This is rare and typically applies to income that is exempt from tax (such as certain redundancy payments or foreign income).
🔹 OT – No personal allowance has been applied, often because you’ve started a new job and your employer hasn’t received your correct tax details yet.
Why Your Tax Code Matters
If your tax code is wrong, you could be paying too much or too little tax—and either scenario can cause issues later down the line. While HMRC may correct it eventually, it’s better to check early and avoid an unexpected bill or refund delay.
We always recommend checking your payslip regularly and keeping an eye out for tax code changes. If you’re unsure what your code means or think something doesn’t look quite right, get in touch with us at SA Lee Accountancy Ltd. We’re here to help make sense of it all and ensure you’re being taxed correctly.
Need help understanding your payslip or tax code?
Let’s take the confusion out of tax. Whether it’s a one-off question or ongoing support, we’re just a phone call or email away.