In this section:
Understanding employee tax codes
An employee's tax code is usually made up of one or more numbers followed by a letter. If you replace the letter with ‘9’ this tells you the amount of pay an employee can earn from you in a tax year before they pay any tax. The tax code spreads this tax-free amount equally over the year so that your employee gets about the same take-home pay each week or month. If the tax code starts with a letter or only consists of letters then the codes works differently – as described in the table below.
Never alter an employee's tax code unless HM Revenue & Customs (HMRC) tells you to.
On this page:
Receiving tax codes from HMRC
Increasingly, HMRC is sending tax code notices to employers online. You will start receiving your tax codes online as soon as you register for the HMRC ‘PAYE Online for employers’ service. (Nearly all employers must now register for PAYE Online in order to meet the requirement to file their Employer Annual Return online.)
There are two ways of accessing the tax codes that HMRC sends online to you. You can:
- Log on to the ‘PAYE online for employers’ service on the HMRC website and choose the ‘tax code notices’ option. If you provide the service with an email address, it will send you an email alert each time HMRC sends you an update.
- Use the PAYE Desktop Viewer (PDV). This is an application that you can download and install from the HMRC website. It is particularly suitable for employers expecting to receive a lot of tax code notices from HMRC.
You can also ask HMRC to resume sending paper versions of your tax code notices.
More about the requirement to file the Employer Annual Return online
Using HMRC’s PAYE Desktop Viewer
Types of tax code
| Type of tax code | What the tax code means |
|---|---|
| Suffix codes One or more numbers followed by L, P, T, or Y |
Example: 345L, 456P or 0T The number plus ‘9’ is the amount
of pay an employee can earn from you in a tax year before they
pay any tax. For example a tax code 508L means the employee is
entitled to £5,089 of tax-free pay in the tax year. The letter determines how we’ll ask you to adjust the number part of the code to take account of any Budget changes that may affect the employee’s tax-free pay. |
| Prefix codes Start with D or K |
Example D0 or K123 The code D0 means you must deduct tax at
the higher rate from all pay. The letter K means your employee has already used their tax-free allowances for the year. The number plus ‘9’ indicates how much must be added to their taxable income to make sure they pay tax on all the taxable income they have received. This may mean you end up deducting tax from their pay at higher rates than normal. For example, K123 means £1,239 needs to be added to their taxable income to ensure they pay the right tax. |
| Letter only codes BR or NT |
BR means you must deduct tax at the basic rate from all their
pay. NT means you mustn't deduct any tax from their pay. Note: Only refund any tax deducted from an employee before the issue of an NT code when HMRC tells you to operate it on a cumulative basis. |
Week 1/month 1 tax codes
Most tax codes have the effect of deducting tax evenly over the full tax year – that way your employees' take-home pay doesn’t change much from week to week or month to month. These tax codes operate on a ‘cumulative’ basis.
However sometimes you'll have to use a special method of working out their tax deductions - called a 'Week 1' or 'Month 1' basis depending on how often you pay them. With this method, you ignore all previous pay and tax in the year. HMRC will sort out the final position with your employee at the end of the tax year.
You must use the Week 1 or Month 1 basis if:
- HMRC tells you to
- HMRC issues a code that says Week 1 or Month 1 - for example 522L M1 or 522L W1
- your new employee gives you a P45 with a Week 1 or Month 1 code on it
- it's the 53rd pay week in a tax year (to find our more follow the link below to our guide on week 53 payments)
You may also have to use the Week 1 or Month 1 basis when your new employee gives you a P45 for an earlier year – read the guidance ‘New employee – using the right tax code’ to find out more.
If you’re using payroll software or the P11 Calculator the figures will be worked out automatically when you put in the Week 1 or Month 1 code. If you work out deductions manually you’ll need to use the Taxable Pay Tables Calculator Method and the Pay Adjustment Tables A. Read our guide below ‘Calculating PAYE deductions (paper methods)’ to find out more.
New employee – using the right tax code
Read our guide on dealing with week 53 payments
Calculating PAYE deductions (paper methods)
Go to booklet CWG2 'Employer Further Guide to PAYE and NICs' (PDF 462K)
Emergency tax code
If your employee’s tax code is unknown, HMRC will ask you to operate an emergency tax code. Our guide ‘Taking on a new employee’ tells you when you’ll need to operate one.
The emergency code, which is a number followed by the suffix L, is set each tax year and is the current tax year’s Personal Allowance without the final figure. The current year’s emergency tax code is published in HMRC’s Employer Helpbook E12, ‘PAYE and NICs rates and limits’.
The emergency tax code can be used either on a cumulative or a week 1 / month 1 basis. The Employer Helpbook E12 and our guides ‘Taking on a new employee’ and ‘New employee – using the right tax code’ will tell you when to use the week 1 or month 1 basis.
Using the right employee tax code
Read the Employer Helpbook E12, ‘PAYE and NICs rates and limits’
