A tax code is a short combination of numbers and a letter that tells an employer or pension provider how much income tax to deduct under PAYE. It reflects the tax-free allowances due, with the numbers showing tax-free pay divided by ten.
In one line: A tax code tells payroll how much of someone's pay should be free of income tax each period.
How a tax code works
HMRC issues the code, and the employer applies it without seeing the underlying detail. The number is the tax-free amount divided by ten, and the letter signals the taxpayer's situation, such as L for the standard allowance.
A person with the full 2026-27 personal allowance of 12,570 GBP (HMRC) usually has code 1257L. Payroll then frees roughly 1,047 GBP of pay from tax each month before deducting income tax on the rest.
Codes change when circumstances change. A company car or untaxed income reduces the code, while letters such as BR or D0 mean all income from that source is taxed at a single rate with no allowance applied.
Tax code vs emergency tax
A normal cumulative tax code accounts for pay and allowances across the whole year, smoothing deductions. Emergency tax is a temporary code used when HMRC lacks full details, often taxing income on a non-cumulative basis.
Emergency codes such as 1257L W1 or M1 still give the personal allowance, but only for the current period, so any over or underpayment is corrected once the correct code arrives.
Primary source: GOV.UK: Tax codes