A tax code tells your payroll software how much tax-free pay an employee is entitled to and how to tax the rest. This article explains how to read a tax code, what the letters mean, and how to handle emergency codes, K codes, Scottish and Welsh codes, new starters and second jobs for the 2026 to 2027 tax year. For the rates, bands and how Income Tax is calculated, see the companion article Income Tax through PAYE.
What does a tax code mean?
A tax code is a short combination of numbers and letters. The number represents the employee's tax-free allowance for the year: multiply it by ten to get the annual tax-free amount. The letters describe the employee's situation, for example whether they get the standard Personal Allowance, whether a special rate applies, or whether the code operates in an unusual way. For 2026 to 2027 the most common code is 1257L, which gives a tax-free allowance of £12,570 (1257 times 10) and uses the standard Personal Allowance. Your software spreads that allowance evenly across the pay periods, so a monthly-paid employee on 1257L gets roughly £1,047.50 of tax-free pay each month before any tax is due.
How do I read the number in a tax code?
The number is the annual tax-free allowance divided by ten, with the final digit dropped, so to convert it back you multiply by ten: a code of 1257 means £12,570 of tax-free pay across the year, and a code of 500 would mean £5,000. Payroll software divides that annual allowance across the pay periods, so a weekly-paid employee on 1257L receives roughly one fifty-second of £12,570 each week and a monthly-paid employee one twelfth each month. The allowance accumulates as the year goes on, which is why someone who starts work partway through the year, or who has a low-paid period, can receive a build-up of unused allowance. If the number is preceded by the letter K, the meaning is reversed, as explained below.
What do the letters in a tax code mean?
The letters describe the employee's circumstances. L means the employee gets the standard tax-free Personal Allowance (for example 1257L). M means they have received a transfer of 10% of their partner's allowance under Marriage Allowance, and N means they have transferred 10% of their own allowance to their partner. T means the code includes other calculations, often where HMRC needs to review it or the allowance is being tapered. K means deductions are greater than the allowance, so an amount is added to taxable pay. BR taxes all income from the job at the basic rate (20%) with no allowance; D0 taxes it all at the higher rate (40%) and D1 at the additional rate (45%). NT means no tax is deducted, and 0T gives no allowance but taxes across the normal bands as income rises. Scottish and Welsh codes add an S or C prefix.
What is the standard tax code for 2026 to 2027?
The standard code for 2026 to 2027 is 1257L. The number reflects the standard Personal Allowance of £12,570 (1257 times 10), and the letter L confirms the employee is entitled to that standard allowance. Most employees with one job, no taxable benefits and no untaxed income will be on 1257L. The Personal Allowance has been frozen at £12,570 for several years, which is why the same code carries forward. HMRC issues the code, and unless you receive a coding notice telling you otherwise, you carry an employee's existing code forward into the new tax year following HMRC's annual instructions.
What are emergency tax codes?
An emergency tax code is used when you do not yet have full information about a new employee's tax position. For 2026 to 2027 the emergency code is 1257L operated on a Week 1 or Month 1 basis, which gives the standard Personal Allowance but only one period's worth at a time and ignores any earlier pay in the year. Emergency codes most often arise when a new starter cannot give you a recent P45 and completes a starter declaration. Because it is non-cumulative, an emergency code can result in slightly too much or too little tax in the short term, but HMRC corrects this once it issues a proper cumulative code. If a starter indicates they have another job or pension, you use BR or 0T instead.
What is a K code and how does it work?
A K code is used when an employee's deductions are greater than their tax-free allowance, which turns the allowance negative. Instead of giving tax-free pay, a K code adds an amount to taxable pay, so the employee is taxed on more than they actually earn in order to collect tax on benefits or arrears. To find the added amount, multiply the number after the K by ten: code K585 adds £5,850 to annual taxable pay, spread across the periods. K codes commonly arise where an employee has substantial taxable benefits in kind such as a company car, is repaying tax owed from an earlier year, or has the state pension taxed through their employment. There is an important protection: the extra tax collected through a K code in any pay period cannot exceed 50% of that period's taxable pay, so your software caps the deduction and carries forward any uncollected amount.
What is the 0T code and how does it differ from BR?
The 0T code gives no tax-free allowance at all, but unlike BR it taxes income across the normal rate bands as pay rises, so a high earner on 0T can move through the basic, higher and additional rates. BR taxes every pound at the single basic rate of 20% regardless of earnings. You will most often use 0T where an employee has given you no starter information and you have nothing to go on, or where HMRC instructs it, for example where the Personal Allowance has been fully tapered away above £125,140. Where a new starter has provided no details, you should use 0T (or S0T for Scottish taxpayers) on a Week 1 or Month 1 basis. Because 0T applies the full rate structure, it usually collects more tax than BR for higher earners.
When should I operate a code on a Week 1 or Month 1 basis?
You should operate a code on a Week 1 or Month 1 (non-cumulative) basis only when HMRC tells you to, or when the new-starter rules require it. The main reasons are that HMRC has issued a coding notice marked Week 1 or Month 1, a new employee's starter declaration requires it, or a P45 indicates the previous employer applied the code on that basis. In your payroll software and your FPS you flag this by setting the non-cumulative basis indicator to Yes; you do not change the code itself. The effect is that the employee gets a fresh slice of allowance each period and no back-correction happens, which prevents an unexpectedly large refund or deduction while HMRC reviews the position.
How do Scottish tax codes work and what are the Scottish bands for 2026 to 2027?
Scottish taxpayers have an S prefix on their tax code, for example S1257L, which tells your software to apply the Scottish rates and bands. The S is shown at the front of the code on printed documents such as the P45, P60 and payslips, and is reported in the tax regime field on the FPS. Scotland has more bands than the rest of the UK, so it has extra flat-rate codes: SBR taxes at 20%, SD0 at 21%, SD1 at 42%, SD2 at 45% and SD3 at 48%. For an employee with the standard £12,570 Personal Allowance, the 2026 to 2027 Scottish bands are: starter rate 19% from £12,571 to £16,537; basic rate 20% from £16,538 to £29,526; intermediate rate 21% from £29,527 to £43,662; higher rate 42% from £43,663 to £75,000; advanced rate 45% from £75,001 to £125,140; and top rate 48% above £125,140. The Personal Allowance and the £100,000 taper are set UK-wide.
How do Welsh tax codes work for 2026 to 2027?
Welsh taxpayers have a C prefix on their tax code, for example C1257L, which signals that the Welsh rates apply. For 2026 to 2027 the Welsh rates and bands are the same as the rest of the UK: basic rate 20%, higher rate 40% and additional rate 45%, with the standard £12,570 Personal Allowance. As with the Scottish prefix, the C is shown at the front of the code on printed documents and reported in the tax regime field on the FPS. You must still apply the correct prefix, because it determines which government receives the Income Tax and can matter if Welsh rates diverge from the rest of the UK in future.
How does an employee's tax code change during the year?
HMRC, not the employer, decides an employee's tax code, and tells you about changes by issuing a coding notice. A P6 notice tells you to change an existing employee's code, often part way through the year, for example because of a new benefit, a change in allowances, or tax to collect from a previous year. A P9 notice is issued before the start of a new tax year and tells you the code to use from 6 April. When you receive a P6 or P9, apply the new code from the effective date shown and on the basis the notice specifies. Never change an employee's code simply because they ask you to; if they think it is wrong, they must contact HMRC, who will issue a revised notice.
What do I do with a new starter's tax code?
When someone joins, your first step is to find the right code, which depends on whether they give you a recent P45. If they hand you a P45 from the current tax year, you normally use the code and year-to-date figures shown on it. If they have no P45, ask them to complete a starter declaration, which has three statements: that this is their first job since 6 April, that it is now their only job, or that they have another job or pension. The statement determines the code: broadly the first or only-job statements lead to 1257L (often on a Week 1 or Month 1 basis), while the other-job statement leads to BR. Report the new employee and the code on your first FPS, and HMRC will review and issue a corrected code if needed. See the article Starter declarations explained.
How should I tax a second job, and when do I use BR or D0?
When an employee has more than one job, their Personal Allowance is normally given against their main job only, so the second job is usually taxed without any allowance. The most common code for a second job is BR, taxing all of that income at 20%, on the assumption the main job has used up the allowance. If the employee is a higher-rate taxpayer overall, HMRC may instead issue D0, taxing the second job at 40%, or D1 at 45% for an additional-rate taxpayer. You apply whichever code HMRC issues, and you should not assume BR yourself unless a starter declaration indicates another job and no P45 is provided. The same logic applies in Scotland and Wales using the S and C prefixed equivalents. If the split of allowance between jobs is wrong, the employee should contact HMRC.