Week 2
Week 2: Your Tax Code Isn’t Just a Number Last week we looked at what is actually on your payslip. This week, we’re looking at one of the smallest items on it, but one that can make a very noticeable difference to your take-home pay: Your TAX CODE. For many employees in England, Wales and Northern Ireland, the familiar code for 2026/27 will be 1257L. HMRC says 1257L is currently used for most people with one job or pension. But what does it actually mean? The numbers in a tax code broadly represent the amount of tax-free income HMRC has allocated to that employment or pension. In a normal code, you usually multiply the number by 10. So: 1257 → £12,570 That corresponds to the standard Personal Allowance for 2026/27. The L means you are entitled to the standard tax-free Personal Allowance. But this is important: 1257L does not mean that everyone should automatically have £12,570 tax-free through every job they have. You only have one Personal Allowance for the tax year, even if you have several jobs or pensions. If you have more than one source of PAYE income, HMRC may allocate your allowance to one job and use another code on the second job. For example, you might see: BR → all income from that employment is taxed at the basic rate – 20% D0 → all of it is taxed at the higher rate – 40% D1 → all of it is taxed at the additional rate – 45% These codes do not automatically mean something has gone wrong. They can be entirely appropriate where your Personal Allowance is already being used elsewhere. Then there are K codes. These work differently. A K code can be used where the deductions HMRC needs to include in your tax code are greater than your available allowances. That can happen because of things such as taxable company benefits, State Pension, certain untaxed income, or tax owed from an earlier year. With a K code, the number is effectively used to INCREASE the amount treated as taxable, rather than giving you tax-free pay. There is also an important safeguard: tax deducted using a K code cannot exceed 50% of your pre-tax pay or pension for that pay period. You might also see something like: 1257L M1 1257L W1 or 1257L X These are emergency or non-cumulative codes. Normally, PAYE looks at your pay and tax position across the tax year to date. Under a Week 1, Month 1 or X basis, each pay period is effectively considered on its own instead. That can sometimes result in too much or too little tax being deducted until HMRC updates the code. And one more thing that often causes confusion: Your employer does not normally decide what your tax code should be. HMRC determines the code and tells the employer which code to operate. Your payroll department applies that instruction through PAYE. So if you think your tax code is wrong, it is worth telling Payroll, but the organisation that normally needs to correct the code is HMRC. HMRC will NOT discuss your personal income details or tax code with your employers, so you will need to call them yourself on HMRC Income Tax / PAYE enquiries: 0300 200 3300. Your code can change during the year because HMRC receives new information about your circumstances, including another job or pension, taxable benefits, untaxed income or an amount of tax that needs collecting. The practical lesson is simple: Don’t ignore your tax code just because Payroll has calculated exactly what the code told it to calculate. A payroll calculation can be mathematically correct while the underlying tax code does not reflect your current circumstances. Check the code shown on your payslip against your Personal Tax Account. HMRC also provides an online tax-code checker which explains the numbers and letters, estimated tax and deductions included in the code. https://www.gov.uk/guidance/check-what-your-tax-code-means If something doesn’t look right, investigate it early. Because a five-character code sitting quietly near the top of your payslip can determine hundreds or even thousa