Understanding your PAYE tax code

Your PAYE tax code tells your employer or pension provider how much tax to deduct from your income. It’s based on the allowances and deductions HMRC expects you to have during the tax year, and it can change if your circumstances do.

What’s included in your tax code?

HMRC calculates your code by starting with your Personal Allowance, then adjusting for:

• Reliefs and allowances (e.g. pension contributions, gift aid, marriage allowance)

• Deductions (e.g. taxable benefits, underpaid tax from previous years)

• State pension (which is paid gross and taxed via your code)

The result is a figure that determines how much of your income is tax-free. If the calculation results in a negative figure, extra tax will be collected through your pay.

Common tax code letters

Each code ends with a letter that gives more detail:

• L – You’re entitled to the standard Personal Allowance

• M/N – You’ve transferred or received Marriage Allowance

• T – Your code includes other adjustments

• BR/D0/D1 – All income is taxed at a basic, higher, or additional rate (often used for second jobs or pensions)

• S – Scottish tax rates apply

• SBR/SD0/SD1 – Scottish basic, intermediate, or higher rate applies

  
  

Real-time updates

HMRC uses Real Time Information (RTI) from employers and pension providers to update your tax code throughout the year. This helps ensure the right amount of tax is collected without needing a tax return - but it can also lead to frequent changes.

Why it matters

An incorrect tax code can mean you pay too much or too little tax. If you notice unexpected deductions or changes, it’s worth checking your code and contacting HMRC if needed.

At BlueFox Accounting, we help clients understand their tax codes and resolve any issues quickly. Whether you're employed, retired, or managing multiple income sources, we’ll make sure your tax position is clear and accurate.