PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

What your PAYE code means

Employee tax codes and National Insurance

You will normally be sent a notice of coding (form P2) by HMRC each tax year in January / February. Your employer is told your code number but not how it has been calculated. This is important because it means that the employer is not able to check if a code is correct. It is up to you to check that the code is correct.

The following information explains how tax codes work. For more information you may also want to read the HMRC pages on tax codes – https://www.gov.uk/tax-codes

Most PAYE codes have a number followed by a letter.

  • The number tells the employer how much tax free pay you are allowed
  • The letters also have a specific meaning (see below)
  • Some codes consist of letters alone
  • Codes may also have ‘X’ attached to the end (used to be ‘W1’ or ‘M1’); meaning the payroll should be used with the tax code stated, but on a week 1 or month 1 basis

From 6 April 2016, PAYE codes for Scottish taxpayers, will have an ‘S’ prefix.

We will look at these in more detail below.

What the numbers mean

The number tells the employer how much tax free pay you are allowed (but please see special case for ‘K’ code below).  The last digit of your tax free pay is removed to create the code (so a £10,000 personal allowance becomes the digits 1000 in the code).

For example, if your code number is 240, you are entitled to tax-free pay of £2,400. Therefore, you can earn £200 each month (£2,400 divided by 12 months) before any tax is deducted. Any pay above that will be taxed. Using the tax tables provided by HM Revenue and Customs, or an approved computer program, your employer works out how much tax is due, takes it from your pay, and pays the rest to you. The tax is paid over to HMRC.

What the letters mean

‘L’ refers to the normal personal allowance for those born after 5 April 1948.  The letter ‘N’ meaning that you are part of a couple and have given away 10% of your personal allowance to your partner; and the letter ‘M’ meaning that you have received 10% of the personal allowance from your partner.

‘T’ refers to circumstances where there are other items that require HMRC to look at your tax code, for example the income-related reduction to the Personal Allowance for those with income above £100,000.

The standard code (also called emergency code) – 1100L (1060L for 2015-16)

The 1100L code means that you are entitled to the full basic tax free personal allowance for 2016-17 of £11,000 (2015/16 – £10,600). 1100L (2015/16 – £10,600) is the right code for your main job in 2016-17, if you don’t have any taxable benefits in kind from your employer (such as a company car or medical insurance), have no allowable work expenses and have no untaxed sources of income or unpaid tax which is being collected through your PAYE code.

TaxAid Tip

If you are not sure what personal allowances are, or would like an introduction to how the UK income tax system works, you may want to read our income tax section.