The Full Guide to UK Tax Codes (for HR Teams)

HMRC assigns a tax code to every employee operating under PAYE. The code acts as an instruction to the employer: it defines how much of the employee's income is tax-free in that tax year, enabling the payroll system to calculate and deduct the correct amount of Income Tax before each payment is made.

The code reflects the employee's tax-free Personal Allowance, adjusted for their individual circumstances. For most employees, that means a straightforward code such as 1257L. For those with benefits-in-kind, multiple jobs, or unpaid tax from previous years, the code will look different. Understanding what each element means is the starting point for every payroll decision that follows.

When HMRC assigns a tax code to an employee, it's your payroll team's responsibility to enter it correctly into your payroll system and keep it current. The software does the mathematics — but only if the input is right. An incorrect code means the employee either overpays or underpays tax. That creates an administrative correction burden and, in the eyes of the employee, signals a failure of basic payroll competence.

Every UK tax code has two components: a number and one or more letters. The number determines how much tax-free income the employee receives from that employment in the current tax year. The letter indicates the employee's situation and how it affects their Personal Allowance and the rates at which their income is taxed.

For 2026/27, the standard Personal Allowance is £12,570. Most employees with one job and no taxable benefits will hold the code 1257L, the most common tax code in the UK.

The number in a tax code tells the employer how much tax-free income the employee receives from that employment in the current tax year. Multiply the number by 10 to get the annual tax-free amount.

The number adjusts when an employee's Personal Allowance changes, for example, because they receive a benefit-in-kind such as a company car or private medical insurance. In those cases, HMRC recalculates and issues an updated code to the employer.

Letters reflect the employee's tax situation, whether they're entitled to the standard Personal Allowance, taxed at a different rate, or subject to a different national rate framework. The letter L, for instance, means the standard Personal Allowance applies. S and C indicate Scottish or Welsh rates respectively. A full breakdown of every confirmed HMRC letter code appears in the table below.

The table below covers every confirmed HMRC tax code letter, grouped by category for ease of reference. Scottish and Welsh codes apply to employees whose main home is in Scotland or Wales respectively; emergency codes are temporary and should be resolved as quickly as possible. Remember that HMRC is the authoritative source for all code definitions.

The K code applies when an employee has income or deductions (such as company benefits, unpaid tax from a previous year, or taxable State Pension) that are higher than their Personal Allowance and are not already being taxed elsewhere. Unlike every other code, the K code amount is added to the employee's taxable pay, not subtracted from it.

Critical rule: The tax deduction for each pay period cannot exceed 50% of the employee's pre-tax pay or pension. This cap protects employees from an oversized deduction in a single pay run and is a compliance requirement, not a discretionary limit.

HMRC does the calculation, not the employer. Your team's role is to apply the code correctly once it's been issued. That said, understanding the logic helps HR managers answer employee queries accurately and spot errors before they become a payroll problem.

HMRC starts with the standard Personal Allowance (£12,570 for 2026/27) and then adjusts it:

• Subtract any untaxed income, such as savings interest or part-time earnings not yet taxed elsewhere

• Subtract the value of any benefits-in-kind, such as a company car or private medical insurance

• Subtract any High Income Child Benefit Charge adjustments

• Add any reliefs or allowances that increase the tax-free amount

The adjusted figure is divided by 10, and the last digit is replaced by a letter. If deductions exceed the Personal Allowance and push the figure below zero, a K code is issued instead.

The employer's responsibility begins when the code arrives, enter it correctly into your payroll system and update it promptly whenever HMRC issues a revised code.

An emergency tax code is applied when HMRC doesn't yet have the information it needs to issue a permanent code. Tax is calculated on what the employee earns in the current pay period only (not cumulatively across the year), which means the employee is taxed as though they earn that amount every week or month, regardless of what they've actually earned so far. This can result in overpayment.

Emergency codes are identified by the suffixes W1 (weekly pay), M1 (monthly pay), X (variable pay dates), or the marking NONCUM. Common triggers include a new starter without a P45, an employee beginning work after a period of self-employment, or an employee who starts receiving company benefits or a State Pension for the first time.

What your team should do:

1. Collect the right starting information. If a new starter doesn't have a P45, use HMRC's starter checklist, the document that replaced the old P46. This captures the employee's previous employment and income details, enabling you to assign a temporary code and submit the correct information to HMRC. 

2. Apply the temporary code correctly. While the emergency code is active, calculate tax only on the current pay period's earnings, not the year-to-date total. This is the key operational difference from a standard cumulative code, and it must be applied accurately to avoid compounding the overpayment.

3. Monitor for the permanent code. HMRC will usually update the code once it has received information from both the employee's previous and current employers. This can take up to 35 days from the employee's start date. Check PAYE Online or your payroll software for the updated coding notice (P6 or P9), update the payroll record promptly, and action the change before the next pay run.

If an employee has overpaid tax while on an emergency code, they may be eligible for a refund. If they've underpaid, HMRC will typically adjust the code in a subsequent period to collect what's owed. In either case, your team's role is to apply the updated code as soon as it arrives, not to manage the refund or recovery process directly.

Tax codes are updated whenever there's a change in the employee's tax position. Changes can be triggered by the employee's personal circumstances or by information the employer submits to HMRC, and HR teams need to know both types.

Employee-driven triggers:

• Taking on a second job or additional pension income

• Applying for or ceasing Marriage Allowance

• Starting to receive State Pension or taxable state benefits

• Change in savings interest that exceeds the Personal Savings Allowance

Employer-reported triggers:

• Reporting a new or amended benefit-in-kind via a P11D or P46 (car), for example, a company car, private medical insurance, or employer-provided accommodation

• Correcting P45 details submitted for a new starter

When a code changes, HMRC sends an email alert to the employer. The updated tax code. sometimes called a P6 coding notice, is then accessible in PAYE Online, the PAYE Desktop Viewer, or directly through your payroll software if it has a live HMRC integration. The employer's obligation is clear: update the payroll record as soon as possible and before the next pay run. Applying an outdated code beyond the point of notification creates an employer-side error.

Tax code errors happen, HMRC may have acted on incomplete information, or an employer-side submission may contain an error that's skewed the employee's record. Either way, the process for fixing it depends on where the error originated.

1. Review the code against the employee's known circumstances. Compare the code to what you know: their employment type, any benefits-in-kind that have been reported, and the P45 details submitted at onboarding. If the number doesn't reflect the expected Personal Allowance, or the letter doesn't match the employee's situation, there's likely an error worth investigating.

2. Advise the employee to contact HMRC directly. For most tax code errors, the employee needs to initiate the correction via their Personal Tax Account at gov.uk. 

3. Act on the employer side if the error originated with your team. If the issue stems from information your team submitted, for example, incorrect P45 details entered at onboarding, contact HMRC via PAYE Online to submit a correction. PAYE Online is the employer's portal for accessing coding notices and communicating changes to HMRC.

Once the correct code is in place, your payroll system will adjust calculations going forward. Employees who have overpaid tax while on an incorrect code may be entitled to a refund; those who have underpaid will typically have the amount collected through an adjusted future code. HMRC manages both, your team's role is to apply the corrected code promptly and accurately.

There are three routes for checking a tax code, and the right one depends on whether you're dealing with an existing employee or a new starter.

PAYE Online is the employer's portal for all tax code management. It's not the same as the employee's Personal Tax Account, which is a separate, individual-facing service. Make sure your team knows the difference before directing anyone to either portal.

In practice, HR and payroll teams don't calculate tax, they apply the codes HMRC issues, and the payroll software does the rest. The critical point of control is accuracy at input: the right code, applied to the right employee, before the right pay run. A code entered incorrectly is a deduction calculated incorrectly, and that error compounds across every pay period until it's corrected.

A centralised HR platform that connects employee records with payroll data makes it easier to catch discrepancies early. When onboarding documents, P45 details, benefit elections, and payroll inputs all sit in one place, the gap between what HMRC is told and what the payroll system applies narrows significantly. That's the practical case for integrating HR and payroll, not just the theoretical one. Personio can help you to streamline payroll, track employee performance and transform manual processes into automated workflows. Plus, our platform makes things easy by giving you a bird’s eye view of all of your employee data, all in one place

The standard tax code for 2026/27 is 1257L. It applies to employees with one job, no untaxed income, and no taxable benefits. The number 1257 reflects the standard Personal Allowance of £12,570, and the letter L indicates the employee is entitled to the full standard allowance. For employees whose main home is in Scotland, the equivalent standard code will carry an S prefix.

The letter indicates the employee's situation and how it affects their Personal Allowance and tax rate. L means the standard Personal Allowance applies. S indicates Scottish Income Tax rates. C indicates Welsh rates. A full breakdown of every letter appears in the table earlier in this guide.

Compare the code to what you know about the employee: their employment type, any benefits-in-kind that have been reported, and the P45 details submitted at onboarding. If the allowance reflected in the number seems lower than expected given no known benefits, or the letter doesn't match the employee's location or employment situation, it's worth investigating. 

An emergency tax code ends in W1, M1, X, or shows NONCUM on the payslip. It means tax is calculated on the current pay period's earnings only, not cumulatively across the year. HMRC typically resolves the code within 35 days of the employee starting, once it has received information from the employee's previous and current employers.

Yes. An employee with more than one job or pension holds a separate tax code for each employment, and this is correct. The primary employer uses the main code including the full Personal Allowance; secondary employers use BR, D0, or D1, with no Personal Allowance applied. 

A K code means the employee has income or deductions (such as company benefits, unpaid tax from a previous year, or taxable State Pension) that exceed their Personal Allowance and are not already being taxed elsewhere. 

Sources:

1. HM Revenue and Customs — Understanding your employees tax codes

2. HM Revenue and Customs — Tax codes

3. HM Revenue and Customs — Tell HMRC about a new employee: Overview

4. HM Revenue and Customs — PAYE Online for employers: Using PAYE Online 

5. HM Revenue and Customs — Income Tax rates and Personal Allowances

6. HM Revenue and Customs — P9X — Tax codes to use from 6 April 2026

Sources last checked on: 29-Apr-2026