Why Has My Tax Code Changed and What Should I Do?

A change in your tax code from HM Revenue & Customs (HMRC) means your income tax withholding has been adjusted. Your employer or pension provider uses this code to determine how much tax to deduct from your pay through the Pay As You Earn (PAYE) system. HMRC uses this process to align your tax deductions with your annual income and allowances. Understanding the change ensures you pay the correct amount of tax.

Understanding Your Tax Code

A tax code is comprised of numbers and letters that hold specific meaning for tax calculation. The numbers represent the amount of tax-free income you are entitled to in a tax year, known as your Personal Allowance. To determine the monetary value, add a zero to the end of the number. For instance, the code 1257L signifies that you can earn £12,570 before any income tax is applied for the 2025/2026 tax year.

The letter at the end of your tax code provides additional context about your circumstances. The letter ‘L’ in 1257L indicates you are entitled to the standard tax-free Personal Allowance. Other letters include ‘M’ or ‘N’, which relate to the Marriage Allowance and show whether you are receiving or transferring a portion of your partner’s allowance. Codes like ‘BR’ and ‘D0’ mean all income from that source is taxed at the basic (20%) or higher (40%) rate, which is common for second jobs.

A ‘K’ prefix on a tax code means your deductions for untaxed income are greater than your personal allowance. This turns your allowance negative, and the number following the ‘K’ indicates how much additional income will be taxed to recover what is owed. Emergency tax codes, often ending in ‘W1’ (weekly) or ‘M1’ (monthly), are used temporarily when HMRC lacks complete information about your earnings, ensuring some tax is paid until the correct code is issued.

Common Reasons for a Tax Code Change

HMRC adjusts your tax code for numerous reasons as your financial circumstances evolve. These changes are designed to ensure the tax you pay aligns with what you are projected to owe by the end of the tax year. An incorrect code can lead to either an overpayment, resulting in a future refund, or an underpayment, which will need to be paid back.

Changes in Employment

Starting a new job often triggers a tax code change. When you switch employers, HMRC may not receive your final pay and tax details from your previous job in time for your first payday. In this situation, you might be placed on a temporary emergency tax code. Taking on a second job will also cause an adjustment, as your Personal Allowance is applied to your main income source, meaning your second job will likely be assigned a ‘BR’ (Basic Rate) code.

Changes in Company Benefits

The value of taxable benefits provided by your employer, such as a company car or private medical insurance, directly impacts your tax-free allowance. If you start receiving a new benefit, HMRC will reduce your Personal Allowance to account for the tax due on its value, which is reflected in a lower number in your tax code. If you stop receiving a company benefit, your tax code should be adjusted upwards.

Changes in Other Income

Beginning to receive income from a new source, like a private pension while you are still working, will prompt a tax code change. The State Pension is taxable, but tax is not deducted at the source. To collect the tax due, HMRC will reduce the Personal Allowance applied to your main employment or private pension, resulting in a lower tax code and higher tax deductions from that pay source.

Adjustments from Previous Tax Years

A tax code change can be related to a prior tax year. If HMRC determines you underpaid tax previously, they may adjust your current year’s tax code to collect the shortfall gradually. This is done by reducing your Personal Allowance for the current year. Conversely, if you overpaid, HMRC might adjust your code to give you the refund through your regular pay.

Changes in Allowances or Reliefs

Your eligibility for certain tax allowances can alter your tax code. If you claim the Marriage Allowance, a partner can transfer £1,260 of their Personal Allowance to their spouse, reducing the recipient’s tax bill. Your code may also change if your total annual income rises above £100,000. At this threshold, your Personal Allowance is reduced by £1 for every £2 you earn above it.

Information Needed to Verify Your Tax Code

To verify your tax code or contact HMRC about a potential error, you should first gather several documents. You will need your National Insurance number, which is a primary identifier for all tax-related matters. You should also collect the following items:

• Your most recent payslips, as they show your current tax code and earnings
• The P2 Coding Notice from HMRC, which explains how your new code was calculated
• Details of all your income sources, including from different jobs or pensions
• Information from your P11D form if you receive taxable company benefits
• The P45 from your previous employer if you have recently changed jobs
• Your P60 from the previous tax year, which summarizes your total pay and tax deducted

How to Correct an Incorrect Tax Code

If you believe your tax code is incorrect, you must take action to have it amended by HMRC. The responsibility for checking the code and initiating a correction lies with you, not your employer.

The most direct way to address an incorrect tax code is by using the HMRC online service through a Government Gateway account. This platform allows you to view the information HMRC holds for you and update it directly. You can report changes to your company benefits or income sources, which should prompt HMRC to issue a revised, correct tax code.

If you prefer to speak with someone, you can call the HMRC Income Tax helpline. Before calling, ensure you have all the necessary documents and information readily available, including your National Insurance number and income details. This will enable the advisor to review your case and make adjustments while you are on the phone.

Once HMRC agrees that your code is wrong, they will issue a new code to your employer or pension provider. Any overpaid tax for the current year is typically refunded through your subsequent payslips.