Why Has My Tax Code Changed? A Guide For Employees

Your tax code is the little code on your payslip. It determines your tax liability, i.e., the amount of tax you pay each period. Understanding your tax code is imperative to ensuring you are paying the correct amount of Income Tax to HMRC. Notably, many UK employees can notice a change in their tax code from time to time, which can certainly raise questions and concerns about what it means and how it affects their take-home pay. Thus, if you are looking for an answer to the question, Why has my tax code changed, you have stumbled upon the right page. In this guide, we will elaborate on the reasons to answer your question, why has my tax code changed, including what tax codes are, and how to respond if your tax code has been altered.

What Is A Tax Code In The UK?

In the UK, all income and benefits an employee receives from their employer are subject to income tax under HMRC regulations. Your employer calculates and deducts your income tax under the PAYE system, meaning your tax is deducted at source from your gross salary. Consequently, what you receive is the net or take-home pay. More importantly, your tax calculation and deduction are based on your tax code and the amount of income.

A tax code is a series/combination of numbers and letters assigned by HMRC that tells your employer or pension provider how much Income Tax to deduct from your pay. The number part of your tax code represents how much tax-free income you are allowed in a year, divided by 10. On the other hand, the letter tells HMRC how the tax should be calculated. For instance, the letter L is used for basic Personal Allowance, BR for basic rate tax, and D0 or D1 for higher/additional rates.

Furthermore,  according to HMRC, the standard tax code for the tax year 2025 to 2026 is 1257L. Primarily, it is used for most employees having one job and no untaxed income, unpaid tax or taxable benefits. As a result, an employee is entitled to the full Personal Allowance of £12,570 before tax is applied. You can learn more about the HMRC tax codes by referring to the government website.

 

Why Has My Tax Code Changed?

Generally, when the new tax year kicks off, HMRC assigns a new tax code to every employee based on the latest tax-free allowance, which is adjusted for any overpayments or underpayments in the previous tax year that are carried over into the new tax year. Furthermore, if HMRC notices throughout the tax year that someone has been overpaying or underpaying tax, it accordingly adjusts the tax code so that the difference becomes 0 when the year ends. Besides, HMRC sends a tax code change notice to their employer, which must be reflected in the payroll system.

In addition, while HMRC adjusts tax codes to ensure you pay the right amount of tax as your circumstances change, your tax code can change for a variety of reasons. The following are some of the most common reasons you can consider when learning why has my tax code changed:

Change In Income:

There are cases when your salary changes significantly, such as due to a promotion, a bonus, part-time work, or a new job. Now, whenever a change occurs in your salary, HMRC may issue you a new tax code to reflect your new income level. It ensures proper tax deductions in the future.

Benefits In Kind:

Benefits in kind (BIK) are non-cash perks or benefits that employers provide to their employees in addition to their salary. Primarily, these benefits can include company cars, private health insurance, interest-free loans, and childcare vouchers. While obtaining these benefits elevates an employee’s salary, they are considered taxable. It means they are subject to taxation and must be reported to HMRC.

Coming back to the tax code, whenever your employer provides you with Benefits in Kind, HMRC will change your tax code to collect tax on these non-cash benefits.

If you want to learn more about BIKs and how they are taxed, the following guides can be of great help to you in this regard:

• Payroll benefits in kind: Everything you need to know.
• A guide on how to calculate tax on benefits in kind.

Multiple Jobs Or Pensions:

If an employee is earning an additional income from their extra job, or if they are receiving income from a private pension, it may result in a different tax code for each source of income. To clarify, one tax code will reflect your Personal Allowance, while the other(s) will show the rates your additional income will be taxed at, such as BR (Basic rate), D0 (higher rate tax code), or D1(additional rate tax code), depending on your income band.

You can gain an insight into the BR tax code by reading the following guides:

• What is a BR tax code in the UK? A guide for employees.
• How to change my BR tax code? A guide for employees.

Underpaid Or Overpaid Tax:

In the event you have underpaid or overpaid tax in a previous tax year, HMRC can adjust your current tax code to collect the owed tax or refund you the difference. This is often referred to as a “coding out” adjustment.

End Of The Tax Year:

As previously explained, at the beginning of a new tax year, which starts on 6 April, HMRC often updates tax codes to reflect the new or modified Personal Allowance, collect outstanding taxes, or revise benefit valuations.

Emergency Tax Codes:

Another important reason why my tax code changed is the absence of your P45 form. Essentially, when you change jobs, it is mandatory to give your new employer all the relevant details of your previous employment. It is because if your new employer does not have your complete information, such as a P45 from your previous job,  HMRC will assign you a temporary emergency tax code. For instance, 1257L W1/M1. It is worth pointing out that an emergency tax code applies to the allowance monthly, rather than yearly, which can result in higher deductions until revised or updated.

Claiming Marriage Allowance:

Marriage allowance is another significant reason you should take into account when seeking an answer to, Why has my tax code changed. If you or your spouse transfers part of your Personal Allowance through the Marriage Allowance scheme, your tax code will be updated. For greater clarity, by claiming the Marriage Allowance, you can transfer £1,260 of your Personal Allowance to your spouse. As an outcome, it reduces your tax by up to £252 in the tax year. Additionally, the person receiving the allowance may get a suffix like M, while the person transferring may receive a N in their tax code.

Tax-Free Benefits And Reliefs:

Claiming expenses or tax reliefs for job-related items, such as uniforms, tools, professional fees, or working from home, can lead to an adjustment in your tax code. This, in turn, may increase your tax-free allowance. To explain, after these deductions are considered, you can keep more of your earnings, since the tax you owe would now be calculated on a lower taxable income.

How To Correct Your Tax Code?

Once you have figured out the answer to, Why has my tax code changed, you would most likely want to change it as well. It is relevant to mention that your employer or payroll provider (like expert payroll accountants)cannot change your tax code without receiving a notification from HMRC. Normally, HMRC automatically updates your code when your income changes, based on information from your employer.

Nevertheless, if HMRC has incorrect details about your income, you might be assigned the wrong tax code. Now, to correct this, it is mandatory that HMRC has your accurate and up-to-date income details. Ultimately, keeping your tax code accurate ensures you do not under- or overpay tax, but the correct amount, and avoid future surprises.

 

 

Concluding Thoughts:

Whenever you find that your tax code has changed, do not worry about why your tax code has changed, since a change in your tax code does not necessarily mean something is wrong. In contrast, it often reflects adjustments that HMRC makes to keep your tax in line with your earnings and benefits. However, you must be familiar with your code and take action on discrepancies to ensure you pay the right amount of tax.

It is often seen that businesses managing multiple income streams or Benefits in Kind can struggle with handling tax codes, adjustments, and payroll deductions. This is where the certified payroll accountants at Payrollservices.accountants can make things easier than they ever have been. From managing payroll systems to deciphering confusing tax codes, our well-versed accountants help businesses comply with HMRC regulations while ensuring employees are taxed accurately and fairly. Whether you are an employer looking to avoid payroll pitfalls or an employee perplexed by your tax code, counting on professional help is a smart move toward financial clarity and compliance. Thus, start making your payroll processing streamlined and efficient with skilled payroll accountants today.

Disclaimer: Please note that the information provided in this blog is exclusively for informational purposes and should not be considered financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.