Most people’s eyes dart over their tax code but this set of digits can have important implications on an individual’s finances. Annually, millions of people are hit by errors and some are often due back “thousands of pounds”,according to Money Saving Expert (MSE). A free tax code calculator can show you whether or not your tax code is correct.

It will give you an answer on whether you are underpaid or overpaid tax here. Continue reading to see what you can do if you have paid the incorrect amount of tax due to your tax code being wrong. A large amount of tax code errors occur when an individual changes jobs part way through the tax year which runs from April 6 to April 5.

PAYE or pay as you earn tax is the system that most UK employees who are not self-employed operate on. It is the system HMRC use to collect income tax and national insurance contributions from an employees salary.

A tax code generally starts with a series of numbers and then a letter at the end.

The tax code alerts people to tell them what their personal allowance or the amount of money they can earn over the course of the year before being taxed is, by the numbers denoted.

The letter generally pertains to where the employee resides. L means someone resides in England, S is Scotland and C denotes that someone lives in Wales.

The tax code can generally be found on payslips, P45s, P60s and online through HMRC.

The amount of personal allowance someone can earn over the course of the 2025/2026 tax year is £12,570. By taking the letter off the end of the tax code and adding a zero, it donates the amount of personal allowance you have over the course of the tax year.

Most people will have a tax code of 1257L if residing in England or 1257S if residing in Scotland, and so on.

In the past, the tax code has been 1250L for example, which meant you could earn £12,500 over the course of the year without paying tax on this amount. If for some reason, a tax code was 600L, this would mean an English resident had a personal allowance of £6,000 for the current tax year.

If you start a new job, it is likely that you may have an OT tax code. This means no personal allowance is present while this code is being used. Ensure your new pay department has a copy of your P45 and get them to speak to HMRC if they need further clarification.

Software is used by companies to communicate pay to HMRC including the tax code. It is vital that payrole in companies are using the correct tax code and they can be told this information by HMRC.

When you start a new job, it is imperative that you read the tax form thoroughly and choose the correct box. Your primary job should contain your personal allowance, while a secondary job such as a part-time gig will generally not contain any personal allowance as it is already being used. If this is not the case, it could lead you to underpay tax which will be collected at some point.

It is important to note that many people mistakingly believe that the personal allowance is the amount they can earn before they pay tax. But, this is incorrect as the amount is actually a pro rata calculation over the course of the year, so per month you can earn £1,047.50 tax free, anything over this is calculated on the relevant tax bracket.

According to low incomes tax reform group, “Your employer takes the NIC off your wages before paying you. Your employer also pays NIC on your earnings.”

If someone earns £2,000 a month taxable income, then they would fall into the 20% bracket for income tax. For the full tax rate brackets, you can visit GOV.UK. 

A pay pre-tax amount minus other deductions – that is £2,000 – would see the first £1,047.50 paid with no tax. The remaining £952.50 would be taxed at 20% which would see a total of £190.50 deducted. This would leave a total amount of £1,809.50 paid into the employee’s bank account in this instance.