The 50-30-20 rule is a useful budgeting guide to help you manage your spending effectively. The rule is that you split your monthly income into three spending categories; needs, wants, and savings. Knowing exactly how much to spend on each category will make it easier to stick to your budget, and help keep your spending in check.

Your tax code is made up of numbers and letters and helps HMRC determine how much income tax and national insurance you should be paying, therefore, if your tax code is wrong, you could be paying too much tax. You can find your tax code on your payslip or P45, usually located near your national insurance number.

Our guide consists of everything you need to know about how tax codes work, what your tax code letters mean, and what to do if you think your tax code could be wrong.


Firstly, your tax allowances are calculated, this is usually your personal allowance (which for 2022/23 is £12,570) added to any other allowances, and job expenses if you have any

Your deductions are next worked out, this is any income that you have not already paid tax on like working part-time or state benefits.

Then, your deductions are subtracted from your total tax allowances, this figure is the total income you are allowed to earn before you start paying tax

Example: 1200L tax code would mean your personal allowance is 12,000


Depending on your individual tax situation, you may not get the common ‘L’ in your tax code, so here is a breakdown of the different letters HMRC uses in tax codes, and what they mean.


L – You are entitled to the standard tax-free allowance

M – Marriage allowance – You have received 10% of your partner’s personal allowance

N – Marriage allowance – You have transferred 10% of your personal allowance to your partner

S – Income or pension is taxed using Scotland’s rates

T – Personal allowance reduced because income is more than £100,000

0T – Your personal allowance is used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code

BR – You are taxed at the basic rate

D0 – Income & pension are taxed at a higher rate (usually if you have more than 1 job)

D1 – Income & pension taxed at an additional rate (usually if you have more than 1 job)

NT – You do not pay tax on your income at all

S0T – New employer does not have the details needed to give you a tax code

SBR – Income & pension taxed using Scotland’s rates

SD0 – Income & pension taxed using Scotland’s intermediate rate

SD1 – Income & pension taxed using Scotland’s higher rate

SD2 – Income & pension taxed using Scotland’s top rate

CBR – income or pension is taxed using Wales’s rates

CD0 – Income & pension taxed using Wales’s higher rate

CD1 – Income & pension taxed using Wales’s additional rate if you have more than one job

C0T – Your personal allowance has been used up or you have started a new job, but a new employer does not have details for a tax code


If your tax code has ‘W1’ or ‘M1’ or ‘X’ at the end, then you are paying emergency tax, these will show on your pay slip as:

– 1250 W1

– 1250 M1

– 1250 X

You may be put on to an emergency tax code if you:

– Have started a new job

– Are working for an employer after being self-employed

– Are receiving company benefits or state pension

Emergency tax codes are temporary, read more about emergency tax codes here


If you have a tax code with a ‘K’ at the beginning, it means that you are not being taxed on that income because your tax deductions already owed from previous years are more than your personal allowance. For most people, this happens when:

– You are paying the tax you owe from a previous year through your wages or pension

– You are getting benefits you need to pay tax on such as state benefits or company benefits


It is important to ensure you are on the correct tax code because if you are paying too much or not enough tax on your income, this could affect your state pension when you are retired from employment. If you have paid too much, you will be able to claim it back, but if you have not paid enough, you will need to pay HRMC the shortfall.

If you think you may be on the wrong tax code, you will need to contact HM Revenue & Customs immediately as you may be paying too much or too little tax on your salary. If you are paying too much, you will be able to claim a tax rebate.


If your tax code has been changed HMRC will write to you or email, they will also tell your employer or pension provider that your tax code has changed. Your next payslip will then show your new tax code and any adjustments to your pay if you were paying the wrong amount of tax.