Limited company directors – how do HMRC tax codes work?

Every employee or pension recipient taxed through PAYE is assigned an HMRC tax code to help ensure the correct amount of tax is deducted from their income.

In this guide, Christian Hickmott, MD of Integro Accounting, explains what tax codes are, why they might change, and what to do if you think your tax code is incorrect.

Decoding your tax code

Most tax codes consist of a number followed by a letter.

The number represents the amount of personal allowance you are entitled to before tax is applied.

To calculate the allowance you can use, multiply the number by ten (e.g., 1257 x 10 = £12,570 for 2026/27).

The letter at the end provides additional information about your tax status.

Common tax codes and their meanings

• L – The most common code, used for those eligible for the standard Personal Allowance (e.g., 1257L for 2026/27).
• K – Applied as a prefix when untaxed income or other deductions are greater than your personal allowance. This can happen if you owe tax from a previous year, receive taxable state benefits, or get benefits in kind.
• 0T – This means you have no Personal Allowance for that employment or pension. It may also be used if you’ve started a new job and your employer does not have the details they need to provide you with another tax code.
• T – Indicates that other calculations are needed to work out your Personal Allowance. This can include circumstances where your Personal Allowance is reduced because of your income.
• BR – All income from that job or pension is taxed at the basic 20% rate.
• D0 – All income from that job or pension is taxed at the higher 40% rate.
• D1 – All income from that job or pension is taxed at the additional 45% rate.
• NT – Stands for ‘No Tax’ and means no Income Tax is deducted from that particular income source.
• W1 and M1 – These can appear as part of an emergency tax code when HMRC doesn’t have your full tax details (e.g., your P45 is missing). W1 applies the code on a week 1 basis, while M1 applies it on a month 1 basis, without taking account of previous pay and tax in the tax year.
• M and N – Relates to the Marriage Allowance. M means you have received 10% of your spouse’s or civil partner’s Personal Allowance, while N means you have transferred 10% of yours to them. This is £1,260 based on the 2026/27 Personal Allowance.
• S – Indicates earnings or taxable income from pensions are subject to Scottish tax rates.
• C – Indicates earnings or taxable income from pensions are subject to Welsh tax rates.

How do I find out what my tax code is?

There are many ways to find out what your current tax code is:

• Your payslip (usually found near the deductions section).
• Your P60 or P45.
• Via an HMRC tax coding letter.
• HMRC’s online portal via your Personal Tax Account.
• If you download the HMRC mobile app.

Why might your tax code change?

Typically, tax codes are issued between January and March each year, but they can also be updated at other times if your circumstances change.

Your tax code can change for several reasons, including:

• Personal Allowance Adjustments – If the government changes the standard Personal Allowance, HMRC can update tax codes accordingly. For instance, the standard code changed from 1250L to 1257L when the Personal Allowance increased from £12,500 to £12,570 a few years ago.
• Additional Income – If you earn extra income from investments, property rentals, or other sources, your tax code may change to reflect these earnings.
• Benefits in Kind – If you receive company benefits such as a company vehicle, these are taxable and may alter your tax code.
• Taxable State Benefits – Certain state benefits may also trigger a tax code adjustment.
• Multiple Jobs – If you have more than one job or receive a pension alongside your earnings, different tax codes may be assigned to reflect the tax-free allowance applicable to each source of income.

For example, let’s say you were issued a tax code of 1257L based on past earnings, but your current year’s income exceeds £100,000.

Your Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000, and is reduced to zero at £125,140. HMRC may therefore adjust your tax code based on your estimated income. If your income subsequently changes, your code may be adjusted again.

Limited company directors can also have a tax code for the salary they receive through their company’s PAYE payroll. Even if your salary is low enough that little or no Income Tax is deducted, benefits in kind or income from elsewhere can affect your tax code. See our guide to setting a tax-efficient director’s salary.

What happens if I have paid too much tax?

If you have paid too much tax during the tax year, due to an incorrect tax code, you can:

1. Check your tax code online via HMRC’s website (see above).
2. Get in touch with HMRC to request a refund if applicable.
3. Check any HMRC tax calculation – if HMRC identifies an overpayment after the end of the tax year, it may send you a P800 explaining whether you will receive a refund automatically or need to claim it.

Common tax code mistakes & misconceptions

• Assuming your tax code is always correct – Errors can occur, and checking your payslips is essential.
• Thinking BR codes apply only to second jobs – While often used for second jobs, the BR code may apply in other circumstances where all of the income from that job or pension is to be taxed at the basic rate.
• Ignoring emergency tax codes – W1 and M1 are non-cumulative bases that may be used as part of an emergency tax code and should normally be updated once HMRC receives the information it needs.

What to do if your tax code is wrong

If you believe your tax code isn’t correct, we recommend you take the following steps:

1. Contact your accountant – always the best person to talk to with anything tax-related.
2. Contact HMRC – use the official HMRC guidance for updating your tax code. Have your National Insurance number and relevant income details to hand.
3. Submit an online query – You can check and update your Income Tax details through HMRC’s online service.