Decoding Your Tax Code: What It Means for Your Salary in 2025
Tax codes determine how much income tax you pay in the UK. Learn how to read yours, what the letters mean, and how to fix errors.
Tax codes look odd and meaningless; nevertheless, they govern how much taxes are deducted from one's pay. In this guide, we shall break down the understanding of tax codes, how to verify one's own tax code, and what action to take in case it is wrong.
Tax Code Defined
Your tax code guides your employer on the amount of taxable income you may gain before deducting PAYE tax (Pay As You Earn). It is provided by HMRC and is based on personal allowance and other variables.
Where to Find Your Tax Code
Tax codes can be found on:
- A payslip
- A P45 or P60
- The online account on HMRC
The normative code would be 1257L, though there will be other variations according to income and benefits.
What Is the Meaning of the Tax Code Numbers?
The number indicates how much money in salary is tax-free. For instance, 1257 would mean that you were entitled to a tax-free sum of £12,570 (i.e., 1257 * 10).
What Do Tax Code Letters Mean?
- L – Standard personal allowance
- BR – Basic rate applied to all income (usually second jobs)
- D0 – Higher rate (40%) applied to all income
- K – You owe tax on benefits or income over your allowance
- NT – No tax is deducted
For more codes and meanings, visit GOV.UK.
Reasons Your Tax Code Might Be Wrong
Some common reasons for tax code errors are:
- When one starts a new job
- Having more than one job
- Receiving perks from the company, for instance, a car or private health insurance
- Changes on income or tax reliefs
How to Rectify an Incorrect Tax Code?
If you are not sure that your tax code is wrong then,
- Check the tax code on your payslip
- Check your personal tax account on HMRC
- Contact HMRC online or by phone
After correcting the code, your employer would automatically be advised and this will get reflected on your future payslips.
It Means Your Take-Home Will Be Affected
A wrong tax code means you are underpaying or overpaying tax. Use our UK salary calculator to see how your monthly take-home would look like based on the tax code.
Final Tip!
Do not ignore your tax code. A two-minute check could save you from hundreds of pounds of overpayment - or a nasty surprise tax bill down the line.