INCOME TAX · 2026/27

The Number on Your Payslip You Have Never Looked At

Your tax code determines how much Income Tax you pay. An incorrect one can cost you hundreds. Here is how to read it.

10 min read · Updated June 2026

Your tax code is a small string of letters and numbers on your payslip that most people ignore entirely. It sits there, month after month, doing its job without attracting attention. Which is exactly the problem.

An incorrect tax code is one of the most common causes of overpaying Income Tax in the UK. HMRC estimates that millions of employees are on the wrong code at any given time — usually because of a change in circumstances that HMRC has not caught up with, or information that was never provided in the first place.

Understanding your code takes five minutes. The potential refund for getting it corrected can run to hundreds or thousands of pounds, stretching back four years.

An incorrect tax code is silent. It never asks for attention. It just costs you money, month after month, until you notice.

The Standard Code: 1257L

The most common tax code in 2026/27 is 1257L. If this appears on your payslip, you are receiving the standard Personal Allowance of £12,570 — income on which you pay no tax at all.

The number is the allowance with the last digit removed. 1257 → £12,570. The L indicates standard allowances. For the majority of UK employees with one job and no unusual income, 1257L is correct.

If your code has a different number — say 1000L — your allowance has been adjusted. A Benefit in Kind such as private medical insurance might be coded out against your allowance, reducing it. Unpaid tax from a previous year might be collected gradually through a reduced code. The number tells you what HMRC believes your tax-free amount to be.

The Flat Rate Codes

A different category of codes applies no Personal Allowance at all. Every pound of income in that employment is taxed, at a flat rate.

Code

What it means

Typical use

All income taxed at 20%

Second job or additional income source where Personal Allowance is used elsewhere

All income taxed at 40%

Second job where both Personal Allowance and basic rate band are already used

All income taxed at 45%

All income in the additional rate band

These codes are most common for second jobs, freelance income, or additional employment alongside a main role. If you have started a side role and received a code of BR, it is not necessarily wrong — your main employer is already using your Personal Allowance against your primary income, and BR ensures you do not claim it twice.

However, if you receive a flat rate code on what is actually your only or primary source of income, that is worth investigating immediately. On a £35,000 salary, the difference between 1257L and BR is approximately £2,514 per year in Income Tax.

Emergency and Other Codes

0T — No Personal Allowance applied. Used for new employees who have not provided a P45, or where HMRC has no information. Results in higher deductions until corrected.

W1 or M1 (Week 1 / Month 1 basis) — Tax is calculated on each pay period in isolation, without the cumulative adjustment that normally corrects over and underpayments throughout the year. Common for new starters. Usually temporary.

K codes (e.g. K497) — A negative allowance. Your benefits in kind or other taxable income exceed your Personal Allowance, so HMRC adds an amount to your taxable pay rather than deducting it. Unusual but not rare for those with significant employer benefits.

NT — No tax deducted at all. Used in specific circumstances, including some overseas situations.

Scottish and Welsh Codes

If you are a Scottish taxpayer, your code will carry an S prefix — S1257L, for example. This instructs your employer to apply Scottish Income Tax rates, which differ from England and Wales. Scotland has six bands rather than three, with a higher rate of 42% beginning at £43,663 rather than £50,271.

Welsh taxpayers receive a C prefix. Welsh Income Tax rates are currently the same as England, but Wales has powers to vary them independently.

How Codes Go Wrong

The most common sources of an incorrect tax code:

Starting a new job. If you do not provide a P45 from your previous employer, or if the new employer does not receive it in time, HMRC may assign a temporary emergency code.

Having more than one job. HMRC needs to know about multiple employments to allocate your Personal Allowance correctly. If they do not, you may receive 1257L against both, effectively doubling your tax-free allowance — or you may receive an emergency code against your second employer when BR would be appropriate.

Benefits in kind changing. If your employer provides private medical insurance and the value changes, your code should update. It often does not automatically.

Previous year underpayment. HMRC may add a reduction to your code to collect tax owed from a previous year. This is legitimate but worth understanding — your effective tax-free amount is lower than the standard allowance until the debt is cleared.

What to Do If You Think Your Code Is Wrong

Check your payslip or P60 for your current code. Log into your Personal Tax Account at gov.uk to see what HMRC believes your circumstances to be. If it does not match reality, contact HMRC through the Personal Tax Account or by phone.

Overpaid tax from an incorrect code can be reclaimed for up to four tax years. HMRC will either adjust your code for the current year to collect or repay the difference, or issue a refund directly.

Important: This article is for informational purposes only and does not constitute financial or tax advice. Based on 2026/27 HMRC rates which are subject to change. Individual circumstances vary. Seek independent advice from a qualified financial adviser before making any financial decisions. When you invest, your capital is at risk. WageLab is not FCA regulated.

Use the WageLab calculator to see how these tax rules apply to your specific circumstances.

WageLab is not FCA regulated and does not provide financial advice. This article is for informational purposes only. Full article content coming soon.