List of UK Tax Codes - Guide for Employers

New to managing payroll? If you’re an employer, you’ll need to get to grips with the ins and outs of the Pay As You Earn (PAYE) system. This means understanding UK tax codes.

The UK tax system can be complicated to understand, but don’t worry. When it comes to tax codes, we’re here to help. We’ve put together a useful guide to employee tax codes, covering everything you need to know.

This includes what tax codes mean, a breakdown of the different tax codes in the UK, and much more.

So, let’s get started.

What do tax codes mean in the UK?

Tax codes are used in the UK to identify how much income tax an employee should be paying. The code tells the employer how much tax to deduct from the person’s salary or pension.

HM Revenue & Customs (HMRC) issues tax codes. But it’s still important for them to be checked from time to time, especially if an employee’s circumstances should change. For example, they start working more hours. If the tax code isn’t right, it could mean they end up paying too much or too little tax.

How do tax codes work in the UK?

When an employee starts working for your company, you’ll be able to get their initial tax code from their P45 form. Once the person’s information has been sent to and processed by HMRC, the tax code may be updated.

It’s really important for employers to keep up with these changes, or it could result in under or overpayment of tax. As the employer, it’s your responsibility to make sure you deduct and pay the correct income tax for your staff.

How to find an employee's tax code?

If you have a new starter, here’s how to find their tax code.

If the employee has a P45 form:¹

1. Request a completed P45 form from the employee. Obtained from their previous employer upon leaving their last job, the P45 form will contain the person’s details along with info on pay received and tax paid in the current tax year. Crucially, it’ll also contain their tax code.
2. Go to GOV.UK for a tool to work out whether the tax code is the correct one to use, or if it needs updating. Follow the steps and use the information from the employee’s P45.

If the employee doesn’t have a P45 form:¹

1. Take some details from your employee so that you can set them up on your payroll system, including their address, student loan information and National Insurance details.
2. Ask the employee to complete the online HMRC Starter Checklist - you can find it here.
3. Use the information from the completed checklist along with the GOV.UK tool mentioned above to find the correct tax code for your new employee. Make sure to select ‘‘You do not have their P45' when asked the date the employee left their previous employment, according to their P45.

Remember that if HMRC needs to change or update a tax code, it will usually write to you. As well as communicating by post, you should also be able to view any updates online if you use the HMRC PAYE Online for employers service.

Different tax codes in the UK

Tax codes are made up of both letters and numbers. For example, the tax code 1257L - one of the most common codes used for UK employees.

The numbers here tell the employer or pension provider the maximum amount the employee can earn before paying tax. This is calculated by HMRC based on the person’s personal allowance and any other untaxed income they get.

The letter in a typical tax code indicates how a worker’s circumstances affect their annual personal allowance.

Additionally, letters in tax codes let HMRC communicate to employers any blanket changes to tax codes. For example, HMRC may issue guidance to employers at the start of a new tax year telling them to update all ‘L’ codes to reflect the new, updated personal allowance amount.

Here are some of the most common tax code letters used in the UK, along with what they mean:²

There are also emergency tax codes such as W1, M1 or X, which we’ll look at in more detail shortly. You can find a full UK tax codes list over on the GOV.UK website.

Tax code 1257L

One of the most common tax codes used in the UK is 1257L. This is used for employees who only have one job or income source.

The number 1257 denotes the current personal allowance for the current tax year, in this case 2023/24. It means that the person can earn up to £12,570 before they’ll pay tax on their earnings.¹

The L means that they’re entitled to the standard personal allowance.

Cumulative tax code

You may also come across the term ‘cumulative tax code’ when managing payroll as an employer. But what is it?

Actually, cumulative tax codes are the norm for most employees. It means that the person’s tax is calculated on an ongoing or cumulative basis over the course of the tax year. The tax due for each salary payment is worked out after taking into account the tax already paid for the year.³

The only non-cumulative tax codes are emergency tax codes, which we’ll look at next.³

As an employer, you don’t need to worry about cumulative tax codes, or do anything specifically about them. All you need to do is apply the codes provided by HMRC, including any updates or changes.

What is an emergency tax code?

Now, let’s take a look at the last type of tax code you need to know about as an employer managing payroll. This is the emergency tax code.

It is used when HMRC doesn’t receive new income details in time for an employee to get paid. It happens after a change of circumstances, such as a new job, the start of employment after being self-employed, or the receipt of the state pension or company benefits.

You can identify this kind of code as it’ll have either W1, M1 or X at the end, following any numbers. Here’s what each means:¹

• W1 - This means that only one week’s proportion of the allowances due for the tax year is given against each week’s pay.
• M1 - This means the same as above, but monthly.
• X - This is for employees whose pay period is not weekly or monthly - such as four-weekly, for example.

Emergency tax codes are only given on a temporary basis. As an employer, it’s important to provide HMRC with full and up-to-date details as soon as possible, so that the tax code can be updated.

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After reading this guide, you should be all clued up on UK tax codes. We’ve looked at what they are, common and emergency tax codes, and what you need to do as an employer to manage tax codes when running payroll.

Sources used for this article:

Sources checked on 12-Oct-2023.