Most people glance at their payslip, note the figure that lands in their account, and move on. Yet a small string of characters near the top, your tax code, quietly decides how much income tax you hand over. Get it wrong and you either overpay for months or face a surprise bill later.
The number
The number is your tax-free Personal Allowance with the last digit removed. The common code 1257L means you can earn £12,570 a year before income tax applies. Everything above that is taxed at the usual bands.
The letter
- L — the standard allowance, most employees see this.
- BR — all income from that job is taxed at the basic rate, common on a second job.
- K — you have income that is not being taxed elsewhere, perhaps a company benefit, so the allowance is reduced.
- W1 or M1 — an emergency code that taxes each pay period in isolation, often seen after starting a new job.
How a wrong code creeps in
Codes go astray when you change jobs, take on a second role, start getting a company car, or have an old benefit that has since stopped. HMRC works from the information it holds, and that information lags behind real life.
What to do
Check your code against your Personal Tax Account online. If it looks wrong, ring HMRC or update the details through the account. If you have overpaid, you will usually get a refund automatically after the tax year ends, but flagging it early stops the problem dragging on. Five minutes now can save a frustrating reconciliation in spring.