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 hasn’t 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 hasn’t 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 hasn’t 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 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 can’t be more than half an employee’s pre-tax pay or pension.