Most of us have been guilty of getting our payslips and not paying them too much attention (as long as our wages come in!), but there is some important information on those slips that is worth paying attention to. In particular, your tax code can tell you a lot about your tax status. A tax code is a string of numbers and letters that is used by an employer (or pension provider) to calculate how much income tax to deduct from an employee’s pay (or pension). HMRC will tell the employer what tax code to use, and in turn, the tax code tells the employer how much an employee can earn tax-free within a given pay period.   What your tax code means Your tax code can certainly look confusing! What does that string of letters and numbers mean? Well, it’s actually fairly straight forward. For most people in the UK, 1275L is the most common tax code, as this is the tax code for people with only one job. The 1275 refers to the tax free amount an employee can earn within a year, and the letter ‘L’ indicates you are under 65 and receive the basic personal allowance, which is £12,750 for 24/25. Let’s look at this in a bit more detail:   What do the numbers mean? The numbers in your tax code are referring to how much money you may earn within a year before paying tax. Most people in the UK are entitled to a personal allowance, which is currently set at £12,750 (and has been since 21/22). Your tax code uses this figure but drops the last digit, hence the number 1275. This number can change if, for example, you are entitled to tax relief on employment expenses, or if you receive company benefits such as medical insurance, the value of which is deducted from your personal allowance.    What do the letters mean? The letters add a little more confusion, but to put it simply, they are used by HMRC to communicate a person’s personal circumstances that may affect their tax status (for example, if you’re entitled to marriage allowance). The letters used by HMRC are; Letter What it means L You’re entitled to the standard tax-free Personal Allowance M Marriage Allowance: you’ve received a transfer of 10% of your partner’s Personal Allowance N Marriage Allowance: you’ve transferred 10% of your Personal Allowance to your partner T Your tax code includes other calculations to work out your Personal Allowance OT Your Personal Allowance has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code BR All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension) D0 All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension) D1 All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension) NT You’re not paying any tax on this income S Your income or pension is taxed using the rates in Scotland S0T Your Personal Allowance (Scotland) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code SBR All your income from this job or pension is taxed at the basic rate in Scotland (usually used if you’ve got more than one job or pension) SD0 All your income from this job or pension is taxed at the intermediate rate in Scotland (usually used if you’ve got more than one job or pension) SD1 All your income from this job or pension is taxed at the higher rate in Scotland (usually used if you’ve got more than one job or pension) SD2 All your income from this job or pension is taxed at the advanced rate in Scotland (usually used if you’ve got more than one job or pension) SD3 All your income from this job or pension is taxed at the top rate in Scotland (usually used if you’ve got more than one job or pension) C Your income or pension is taxed using the rates in Wales C0T Your Personal Allowance (Wales) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code CBR All your income from this job or pension is taxed at the basic rate in Wales (usually used if you’ve got more than one job or pension) CD0 All your income from this job or pension is taxed at the higher rate in Wales (usually used if you’ve got more than one job or pension) CD1 All your income from this job or pension is taxed at the additional rate in Wales (usually used if you’ve got more than one job or pension)   Occasionally, you may see the letter ‘K’ before the numbers. This means that the employee has income that hasn’t been taxed but is worth more than their personal allowance. They may own tax from a previous year, or be receiving benefits that they owe tax on.   Tax codes for employers As an employer, it is your responsibility to put an employee’s tax code into your payroll software to work out how much tax to deduct from their pay throughout the year. Tax codes are especially important if you are using the Pay As You Earn (PAYE) system, as it allows you to deduct tax and National Insurance contributions (NICs) directly from your employee’s earnings. Employers will be notified of employee tax codes in one of three ways; From a current P45 By direct notification from HMRC By completing a new starter checklist You usually need to update your employee’s tax code at the start