Everyone has a tax code, but not many people know what it means or how it’s used. Here’s a short guide to help you understand how tax codes work and why they matter.
What Is a Tax Code?
Most people in employment receive a personal allowance - the amount of income you can earn before you start paying tax. For the 2025/26 tax year, this allowance is £12,570.
Your tax code tells your employer how much of your income is tax-free, so they know how much tax to deduct and send directly to HMRC.
The Standard Tax Code
The standard tax code is currently 1257L.
- The number (1257) represents your tax-free allowance divided by 10.
- The letter (L) means you’re entitled to the standard personal allowance.
HMRC uses other letters to indicate different circumstances. For example:
- M or N if you transfer or receive part of your partner’s allowance under the Marriage Allowance scheme.
- Other letters if you receive taxable benefits from your employer, such as a company car or private healthcare.
HMRC have a guide to what all the different letters mean here.
Why Your Tax Code Might Be Different
Your tax code may vary if:
- You’ve transferred part of your allowance to a partner.
- You receive employment benefits that reduce your allowance.
- You have additional allowances (e.g. for professional subscriptions or working from home expenses).
For example, if you transfer part of your allowance to your partner, your code might drop to 1131N.
How Tax Codes Work in Practice
Tax codes are HMRC’s best estimate of how much tax you’ll owe during the year. At the end of each tax year, HMRC reviews your income and makes a final calculation.
- If you’ve underpaid, your tax code may be adjusted in the following year to collect the shortfall.
- If you’ve overpaid, HMRC will issue a rebate.
In both cases, they will contact you by letter. HMRC will never call you about tax code changes - so treat any calls claiming to be HMRC as fraudulent.
You can check your tax code and see a breakdown of why it might differ from the standard.
Claiming Allowances
Certain expenses can increase your tax-free allowance, such as:
- Working from home costs.
- Professional body subscriptions not reimbursed by your employer.
It’s important to claim these properly - either through a self-assessment tax return or an official HMRC claim form. If you don’t, HMRC’s year-end review may show you as underpaying tax, even though you were entitled to relief.
Need Support?
Understanding your tax code helps you stay on top of your finances and avoid surprises. If you’re unsure why your code looks different, or want to make sure you’re claiming everything you’re entitled to, we can help you review it.
