Tax codes can be confusing but if you’re running payroll or checking your payslip, understanding them is essential.
At Cloud Bookkeeping Warwick, we help small and medium-sized businesses across the UK run smooth, compliant payrolls and that starts with getting tax codes right.
What is a Tax Code?
A tax code is a series of letters and numbers issued by HMRC that tells employers how much Income Tax to deduct from an employee’s wages.
The code reflects:
- An employee’s personal allowance (the amount they can earn tax-free)
- Any other income, benefits, or tax adjustments
- Their employment status or if they have multiple jobs
Common UK Tax Codes (and What They Mean)
Here are the most frequently seen tax codes in the UK:
1257L
The standard tax code for most people in 2025–26.
It means you get the full £12,570 personal allowance, spread evenly across the year.
BR
“Basic Rate” – tax is deducted at 20% from all income, with no personal allowance.
Usually applies to second jobs or pensions.
D0 and D1
- D0: All income taxed at 40% (higher rate)
- D1: All income taxed at 45% (additional rate)
These usually apply to second jobs when the personal allowance is already used elsewhere.
0T
No personal allowance given. Tax is applied based on the income level only.
Often used when there’s missing info or a new starter without a P45.
K Codes
Indicate that the employee has underpaid tax or receives taxable benefits worth more than their allowance.
The number after K is added to income before calculating tax which means higher deductions.
Why Tax Codes Matter
Incorrect tax codes can cause:
- Overpaying tax, reducing employee morale
- Underpaying tax, leading to HMRC debts and penalties
- Payroll errors, re-runs, and lost time for your business
Getting the tax code right helps avoid costly errors, employee complaints, and HMRC enquiries.
Cloud Bookkeeping Warwick’s Tips for Managing Tax Codes
- Check codes for all new starters. Ask for their P45 or have them complete a Starter Checklist.
- Keep up to date with HMRC notices. If HMRC sends you a P6 or P9 notice with a new tax code, apply it from the next available payroll.
- Use reliable payroll software that integrates with HMRC – this helps flag errors and keeps records accurate.
- Communicate with employees who are on BR, 0T or K codes. Explain why the code applies and how they can check with HMRC if needed.
- Encourage employees to use the Personal Tax Account on GOV.UK to check or update their code.
How Cloud Bookkeeping Warwick Can Help
We manage payroll for clients across Warwick and the UK, making sure:
- The right tax codes are applied
- HMRC notices are actioned promptly
- Payslips are accurate and on time
- You’re always compliant with PAYE, NICs, pensions and more
Whether you have two employees or fifty, we ensure your payroll runs smoothly and professionally.
Book a Free Payroll Consultation
If you’re unsure about tax codes, want to avoid payroll mistakes, or are ready to hand it all over to a trusted team, we’re here for you.
Get in touch with Cloud Bookkeeping Warwick today to schedule your free payroll consultation.