Understanding your employees' tax codes
What the letters mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance.
| Code | How tax is deducted | When this code is usually used |
|---|---|---|
| 0T | From all income - there is no Personal Allowance | When an employee has not given you a P45 or enough details to work out their tax code, or when their Personal Allowance has been used up |
| BR | From all income at the basic rate | For a second job or pension |
| C | From income in the Welsh tax bands | For an employee whose main home is in Wales |
| C0T | From all income - there is no Personal Allowance | When an employee whose main home is in Wales has not given you a P45 or enough details to work out their tax code, or when their Personal Allowance has been used up |
| CBR | From all income at the basic rate in Wales | For a second job or pension |
| CD0 | From all income at the higher rate in Wales | For a second job or pension |
| CD1 | From all income at the additional rate in Wales | For a second job or pension |
| D0 | From all income at the higher rate | For a second job or pension |
| D1 | From all income at the additional rate | For a second job or pension |
| L | At basic, higher and additional rates depending on the amount of taxable income | For an employee entitled to the standard tax-free Personal Allowance |
| M | At basic, higher and additional rates depending on the amount of taxable income | For an employee whose spouse or civil partner has transferred some of their Personal Allowance |
| N | At basic, higher and additional rates depending on the amount of taxable income | For an employee who has transferred some of their Personal Allowance to their spouse or civil partner |
| NT | No tax is deducted | Very specific cases, for example musicians who are regarded as self-employed and not subject to PAYE |
| S | From income in the Scottish tax bands | For an employee whose main home is in Scotland |
| S0T | From all income - there is no Personal Allowance | When an employee whose main home is in Scotland has not given you a P45 or enough details to work out their tax code, or when their Personal Allowance has been used up |
| SBR | From all income at the basic rate in Scotland | For a second job or pension |
| SD0 | From all income at the intermediate rate in Scotland | For a second job or pension |
| SD1 | From all income at the higher rate in Scotland | For a second job or pension |
| SD2 | From all income at the advanced rate in Scotland | For a second job or pension |
| SD3 | From all income at the top rate in Scotland | For a second job or pension |
| T | At basic, higher and additional rates depending on the amount of taxable income | When HMRC needs to review some items with the employee |
If your employee’s tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, for example ‘577L W1’ or ‘577L M1’. Calculate your employee’s tax only on what they are paid in the current pay period, not the whole year.
Tax codes with the letter ‘K’
The letter K is used in an employee’s tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their Personal Allowance.
Multiply the number in their tax code by 10 to show how much should be added to their taxable income before deductions are calculated.
Example An employee with tax code K475 and a salary of £27,000 has taxable income of £31,750 (£27,000 plus £4,750).
The tax deduction for each pay period cannot be more than half an employee’s pre-tax pay or pension.
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