UK Tax Codes for Employers: 2026/27 Guide

New to managing payroll? If you’re an employer, getting to grips with the Pay As You Earn (PAYE) system is essential. Crucially, employers use employee tax codes to calculate the correct Income Tax deductions from staff pay.

The UK tax system can feel confusing at times, but understanding your tax code doesn't have to be. We're here to make it simple. This 2026/27 guide will give you a practical breakdown of what different tax codes mean, how to read them, and how to handle updates from HMRC.

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What do tax codes mean in the UK?

A tax code tells an employer or pension provider exactly how much Income Tax to deduct from an employee’s pay or pension through the Pay As You Earn (PAYE) system. According to GOV.UK, UK tax codes are used directly by employers to work out how much Income Tax to take. And, HMRC will always tell you which specific code to use.¹

HM Revenue & Customs (HMRC) is responsible for calculating and issuing these codes. But, it is still highly important for both employers and employees to check them from time to time. This is even more relevant if an employee’s circumstances change.

For instance, if they start working more hours, receive company benefits, or change their income levels. If the code is incorrect, it can result in staff paying too much or too little tax.

**Note: Employees can actually have more than one tax code at the same time. This happens if they have more than one job or receive a pension alongside a regular salary. This allows HMRC to distribute their tax-free allowance correctly across all income streams.

How do tax codes work for employers?

GOV.UK notes that the amount of Income Tax deducted depends on the employee’s tax code and the amount of taxable income above their Personal Allowance.² Usually, your payroll tax codes software automatically handles this precise calculation.

When a new hire starts, you extract their initial code from their P45. When processed by HMRC, a new coding notice may be issued, which employers must apply for immediately. If an employee believes their current code is incorrect, they must contact HMRC directly to dispute it.

Warning: Employers must never guess or manually adjust an employee’s tax code unless explicit HMRC guidance instructs them to do so. Failing to apply official changes results in costly under- or overpayments.

What employers need to do for the 2026/27 tax year

HMRC’s P9X guidance sets out the mandatory actions required to prepare your payroll for the new year. Because HMRC will not send a new tax code for every single staff member, you must systematically review your payroll records to ensure accurate deductions.³

Before 6 April 2026

You must prepare your payroll records and identify the correct HMRC tax codes for each worker. Ensure you include the correct regional prefix where applicable, such as S for Scottish taxpayers or C for Welsh taxpayers.⁴

For employees WITHOUT a new tax code

• Carry forward the old code: Copy the authorised code from the 2025/26 payroll record and continue using it for 2026/27.⁴
• Remove temporary markers: Do not copy or carry over any "week 1" or "month 1" markings. These must be stripped out so the code operates on a normal, cumulative basis.⁴

For employees WITH a new tax code

• Apply updates immediately: Always use the tax code from the most recent P9(T) paper form or your PAYE Online internet notification, scrapping any older notices.⁴

For employees leaving before 6 April

• Keep the old code: If an employee leaves before 6 April, use their old tax code even if you are paying them after 6 April.⁴

Note:* This rule does not apply if you have already issued their P45 and are making a "payment after leaving." In those cases, specific P9X rules dictate the use of code 0T (or S0T/C0T) on a non-cumulative basis.⁴

Following these precise steps ensures your PAYE tax codes remain fully compliant as you transition into the new financial year.

How to find an employee’s tax code

When onboarding a new staff member, you must establish their correct code to ensure their first payday runs smoothly. The exact process depends on whether the individual can provide their official employment history documentation.

Scenario A: If the new hire has a P45

1. Request the documentation: Ask the incoming employee to provide their P45 from their previous employer.
2. Apply the existing code: Use the exact tax code displayed on that P45 to set up their initial payroll profile.
3. Cross-reference if required: Check official GOV.UK PAYE guidance if you are unsure about the validity or formatting of the code provided.
4. Await updates: Continue running payroll using this information until HMRC processes the starter notification and issues a new coding notice, at which point you must update your records immediately.

Scenario B: If the employee does not have a P45⁵

1. Complete the starter declaration: Ask the employee to fill out the official HMRC starter checklist.
2. Assess the statements: Use the employee's selected statement (A, B, or C) to establish their current employment circumstances.
3. Determine the starter code: Apply the corresponding emergency or standard code dictated by your payroll software or the official GOV.UK starter checklist rules for the 2026/27 tax year.
4. Monitor notifications: Keep this code in place until HMRC transmits a new online or paper coding notice to adjust their personal allowance allocation.

List of common UK tax codes and what they mean

Tax codes are made up of both letters and numbers. For example, the 1257L tax code is the most common for UK employees in the 2026/27 tax year.⁶

The numbers in a tax code indicate the maximum amount of tax-free income an employee can earn before paying tax. This is calculated by removing the last digit of their annual Personal Allowance (e.g., £12,570 becomes 1257). The letters let HMRC communicate specific instructions to your payroll system regarding how a worker’s unique circumstances affect their allowance or tax bands.⁷

GOV.UK provides a full breakdown of tax code letters and their meanings. The table below lists the most common codes and markers used in business payroll today:⁸

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Scottish and Welsh tax codes

If your employees live in Scotland or Wales, their payroll tax setup will differ slightly from that of those living in England and Northern Ireland. GOV.UK lists distinct prefixes and specific rate-code combinations that tell your payroll software to apply regional tax regulations.

As a rule, tax codes for employers dealing with regional staff will always begin with a specific letter identifier.

Scottish Tax Codes (Prefix 'S')

The prefix S indicates that the employee’s income or pension is taxed using Scottish Income Tax rates and bands. Because Scotland utilizes a more graduated, six-tier tax structure, you will frequently see unique rate-code combinations for secondary jobs or individuals without a personal allowance:⁹

• SBR: All income is taxed at the Scottish Basic Rate (20%).
• SD0: All income is taxed at the Scottish Intermediate Rate (21%).
• SD1: All income is taxed at the Scottish Higher Rate (42%).
• SD2: All income is taxed at the Scottish Advanced Rate (45%).
• SD3: All income is taxed at the Scottish Top Rate (48%).

Welsh Tax Codes (Prefix 'C')

The prefix C means the employee’s income or pension is taxed using Welsh rates. For the 2026/27 tax year, the Welsh Government has kept tax rates completely aligned with the rest of the UK. However, the prefix remains critical so that the correct revenue is allocated to the Welsh government.¹⁰

Common Welsh secondary and flat-rate codes include:

• CBR: All income is taxed at the Welsh Basic Rate (20%).
• CD0: All income is taxed at the Welsh Higher Rate (40%).
• CD1: All income is taxed at the Welsh Additional Rate (45%).

Employer Takeaway: Your payroll software should automatically adjust deductions based on these prefixes, but it is your responsibility to ensure the 'S' or 'C' is present on the employee’s payroll profile if instructed by an HMRC coding notice.

2026/27 tax thresholds and emergency tax codes

As an employer, accurately setting up payroll requires mapping your employee data to the baseline limits and temporary tracking codes established by the government.

According to GOV.UK’s 2026/27 employer rates and thresholds guide, the standard individual configurations remain frozen at recent baselines, ensuring continuity across your core accounting periods.¹¹

Core Payroll Thresholds

• Standard Employee Personal Allowance: £12,570 per year. This is the baseline amount an eligible individual can earn before any Income Tax is calculated.¹¹
• PAYE Threshold: £242 per week or £1,048 per month. This represents the specific primary threshold where standard pay configurations trigger mandatory PAYE deductions.¹¹

Emergency Tax Codes from 6 April 2026

If a new hire starts without an available P45 or an established tax history, payroll systems legally default to temporary settings. For the 2026/27 tax year, official GOV.UK emergency tax code rules mandate the use of specific non-cumulative markers:¹²

• 1257L W1: For employees paid on a weekly cycle.
• 1257L M1: For employees paid on a monthly cycle.
• 1257L X: For employees with irregular or varying pay frequencies.

These markers instruct your system to isolate the current pay window, granting precisely one week or one month’s proportion of the Personal Allowance (£242 weekly or £1,048 monthly) without calculating year-to-date earnings.

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What is an emergency tax code?

GOV.UK states that emergency codes are temporary markers used when HMRC does not have enough immediate information about a worker’s current income or employment history to assign a permanent code.¹² Rather than stalling a payday, these temporary configurations ensure that a baseline tax deduction can still be processed through payroll.

Unlike standard codes, emergency configurations operate on a non-cumulative basis. This means your payroll software calculates Income Tax in complete isolation. It is based solely on what the individual earns in that specific pay period (disregarding any prior year-to-date earnings or tax already paid).

Common Emergency Markers

You will identify an emergency tax code on a payslip by looking for a specific suffix appended to the standard figures:¹²

• W1 (Week 1 basis): Used if the employee is paid on a weekly cycle.
• M1 (Month 1 basis): Used if the employee is paid on a monthly cycle.
• X: Used if your business operates irregular or varying pay periods (such as a four-weekly cycle).

Employer Management Rules

Employers must keep these emergency configurations active on their system until HMRC processes the employee's setup parameters and officially transmits a new coding notice. As soon as you receive it, you must update your payroll immediately.

P9X End-of-Year Warning: As highlighted in HMRC’s P9X payroll guidance, you must never carry over or copy week 1 or month 1 markings into a new tax year for existing staff who do not have a new individual code.¹¹ These markers must be stripped out at the transition deadline so the code reverts to a standard cumulative configuration.

What to do if an employee’s tax code changes

When an employee’s financial or personal circumstances alter, HMRC will dynamically recalculate their allowance distribution and issue an official amendment. As an employer, you will receive this update via a paper P9(T) or P6 form, or as a direct notification within your PAYE Online account.

To maintain compliance and avoid payroll errors, follow these steps:

• Prioritise the newest data: Always implement the most recent tax code notification issued to you.
• Update systems promptly: Apply the new configuration during your next open payroll run.
• Discard old records: Never continue using an older code once a newer HMRC digital or paper notice exists.

If an employee disputes their code

Employers cannot manually change a code simply because an employee disagrees with it. If a staff member believes their assignment is incorrect, they must handle it directly with the revenue service:

• Direct them to HMRC: Advise the employee to contact HMRC directly to challenge or update their file.
• Share the digital checker: Direct employees to the official GOV.UK tax code checker.⁸ Updated on 6 April 2026 to reflect 2026/27 tax year operational rates, this interactive tool helps individuals decipher what their letters and numbers mean. See exactly how much Income Tax they are due to pay, and submit record updates online if something is incorrect.

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FAQs

What does the tax code 1257L mean?

This is the standard tax code for most UK employees.⁸

• 1257 represents the tax-free Personal Allowance. It means an individual can earn up to £12,570 per year before paying any Income Tax.
• L is the suffix indicating that the employee is entitled to the standard, basic Personal Allowance.

What are the emergency tax codes for 2026/27?

HMRC uses emergency tax codes when an employee’s precise tax situation is unconfirmed (e.g., they started a new job without a P45). For the 2026/27 tax year, the emergency codes are:¹²

• 1257L W1 (Weekly pay cycle)
• 1257L M1 (Monthly pay cycle)
• 1257L X (Non-standard or irregular pay cycle)

These codes mean the employee gets the basic tax-free allowance for that specific pay period, but it is calculated in isolation rather than cumulatively across the whole tax year.

What does BR mean on a tax code?

BR stands for Basic Rate. It directs payroll systems to tax 100% of the employee’s income from this source at the flat basic rate of 20%, without applying any tax-free Personal Allowance. It is typically applied to secondary jobs, casual work, or pensions.⁸

What does 0T mean on a tax code?

0T means the employee has zero tax-free Personal Allowance left for this job. This usually happens if they haven't provided a P45, their starter checklist indicates they have another primary income, or their annual earnings exceed £125,140 (where the Personal Allowance is fully tapered away). Total earnings are taxed across the standard basic, higher, and additional tax bands.⁸

What does D0 mean on a tax code?

D0 indicates that all income from this specific source must be taxed at the Higher Rate, which is 40% in England, Wales, and Northern Ireland. No Personal Allowance is factored into this income stream because it is assumed their primary job has already utilized their lower tax bands.⁸

What does D1 mean on a tax code?

D1 dictates that all earnings from this source must be taxed at the Additional Rate of 45% (for earnings in England, Wales, and Northern Ireland). This applies when an employee's total primary income exceeds the additional rate threshold (£125,140), making any secondary income fully taxable at the top rate.⁸

What does K mean on a tax code?

A K prefix is used when an employee's untaxed income or taxable company benefits (like a company car or health insurance) exceed their total tax-free Personal Allowance. Instead of reducing their taxable pay, a K code effectively adds a calculated amount back to their gross pay so that the additional tax can be collected directly through PAYE.⁸

HMRC Protection Rule: By law, deductions from a "K" code cannot exceed 50% of the employee's gross pay in any single pay period.

What does S mean on a tax code?

The S prefix signifies that the employee is a Scottish taxpayer. Their income tax will be calculated using the progressive 6-band Scottish Income Tax structure (ranging from the 19% Starter rate to the 48% Top rate for the 2026/27 tax year), rather than the rates used in the rest of the UK.⁹

What does C mean on a tax code?

The C prefix signifies that the employee is a Welsh taxpayer. This ensures their income tax is processed using the rates set by the Welsh Parliament (which currently match the rates in England and Northern Ireland at 20%, 40%, and 45%).¹⁰

What should employers do if HMRC sends a new tax code?

When HMRC issues a new tax code, employers should:

• Check the details to ensure they match the employee's records.
• Update the tax code in payroll software before the next pay run.
• Apply the new code in the next payroll cycle.
• Keep the HMRC notice on file for at least three years after the end of the tax year.

Can employers change an employee’s tax code?

No. Employers cannot alter an employee's tax code based on a personal request or external dispute. You can only change a tax code if you receive an official, direct communication from HMRC (like a P6 or P9 notification) or if a brand-new employee completes a valid Starter Checklist. If an employee believes their code is wrong, they must contact HMRC directly to get it adjusted.

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Sources:

1. Gov.uk - What your tax code means?
2. PayFit - What do tax codes mean in the UK and how do they work?
3. Iab - 2026/27 payroll checklist: key deadlines, tax codes and HMRC updates
4. Gov.uk - P9X — Tax codes to use from 6 April 2026
5. HMRC – Starter Checklist
6. Jp Accountant - J & P Accountants
7. LITRG – PAYE Codes
8. Gov.uk - Check what your tax code means
9. Sage - Tax codes, bands and rates for Scotland
10. Gov.uk - Income Tax in Wales
11. Gov.uk - Rates and thresholds for employers 2026 to 2027
12. Gov.uk – Emergency tax codes

Sources checked on 01-07-26