UK employer compliance guide
PAYE tax codes for employers: a practical guide
A tax code tells payroll how to deduct Income Tax from a particular employment or pension. Your role is to operate the code and basis provided through the normal HMRC process—not to decide what tax an employee should pay.
In short
Use the HMRC code and instructions you hold for the employee. BR, D0, D1, 0T, K, Scottish S, Welsh C and M1/W1 markers all have specific payroll meanings. Escalate uncertainty through your payroll process or HMRC guidance rather than making an informal change.
Codes payroll teams commonly see
BR applies basic-rate tax to all pay from that employment. D0 and D1 apply higher-rate or additional-rate tax. 0T applies tax bands without a Personal Allowance in that employment. K codes are used where coding deductions exceed allowances. S and C prefixes identify Scottish and Welsh income-tax treatment.
Week 1 and month 1 markers
M1, W1 and X commonly indicate a non-cumulative basis. Payroll uses the current pay period rather than reconciling earlier earnings and tax in the tax year. Treat the marker as part of the PAYE instruction, not as an employee preference.
Starter information and HMRC notices
Use the information and process required for a new starter, then apply later HMRC notices promptly through payroll. An employee may ask why a code is being used, but the employee should contact HMRC to query the underlying position; do not change an HMRC-issued code without the correct instruction.
Useful payroll controls
- Keep a clear record of starter details and each tax-code notice received.
- Check that the payroll system applies any S, C, K and M1/W1 indicators as part of the code.
- Give employees a clear payslip and direct tax-code queries to HMRC where appropriate.
- Seek payroll or professional advice for unusual payments, multiple employments or corrections.
HMRC's PAYE manual explains types of tax code and special cases. This guide is a practical overview, not a substitute for payroll advice.