Your tax code plays an important role in determining how much tax you pay. It ensures that the right amount is deducted from your income and helps HMRC keep track of your tax obligations.

However, tax code errors are surprisingly common and can lead to significant overpayments or underpayments, impacting your finances for years if left uncorrected. 

Many people assume that their tax code is automatically correct, but it’s your responsibility to check and inform HMRC if there's an issue. In this guide, we’ll help you understand your tax code, offer tips on spotting and correcting errors and ensure that you’re not losing out on the money you’re owed.

What your tax code actually means

Your tax code is a combination of letters and numbers that tells your employer or pension provider how much tax to deduct from your income. Here are some of the most common tax codes and what they mean:

  • L – You’re entitled to the standard Personal Allowance.
  • M – You’ve received a Marriage Allowance transfer from your partner.
  • N – You’re transferring some of your Personal Allowance to your partner.
  • T – Other calculations are required to determine your tax.
  • K – You have untaxed income that exceeds your tax-free allowance.
  • BR – All your income from this source is taxed at the 20% basic rate.
  • NT – No tax is taken from this income.

You can find your tax code on your payslip, P45 or P60, or by logging into your HMRC personal tax account

What the letters in your tax code mean

Common tax code errors and how they happen

Mistakes with tax codes happen more often than you might think. Here are some of the most common errors: 

  1. Outdated employer information – If you've changed jobs or have multiple employers, HMRC might not have the most up-to-date details.
  2. Benefit changes – Perks like company cars, private health insurance or fuel allowances might not be correctly reflected in your tax code.
  3. Allowance miscalculations- Errors in calculating personal allowances, such as Marriage Allowance or Blind Person’s Allowance can cause incorrect tax codes.
  4. Emergency tax codes – If you're put on an emergency tax code when starting a new job, you might overpay tax.
  5. Duplicate employment – HMRC might think you have multiple jobs when you've simply switched employers.
  6. Communication gaps – Employers, HMRC and employees don’t always exchange information efficiently.
  7. The complexity of the UK tax system - with millions of taxpayers, errors happen frequently.

What to do if you're on the wrong tax code

How tax code errors impact your refund value

If your tax code is wrong, it can have serious financial consequences:

  1. Overpayment of tax – A too-low tax code means you’ll pay more than necessary, potentially leaving you hundreds or thousands of pounds out of pocket.
  2. Underpayment of tax – A too-high tax code means you’re not paying enough, which can lead to an unexpected bill from HMRC later.
  3. Compounding effects – If an error goes unnoticed for years, you could end up with significant overpayments or underpayments.
  4. Missed allowances – If your tax code doesn’t account for all your entitlements, you might be losing out on refunds you’re eligible for.

How to check if your tax code is correct

Since tax codes can change, it’s important to check yours regularly. Here’s how:

  1. Find your tax code – It’s listed on your payslip, P45, P60 or in your HMRC personal tax account.
  2. Check your personal allowance – Multiply the number in your tax code by 10 to see if it matches your expected Personal Allowance.
  3. Verify the letter – Ensure the letter in your tax code reflects your situation correctly.
  4. Review your Notice of Coding – HMRC sends this document explaining how your tax code was calculated. Check for any adjustments you don’t recognise.
  5. Consider recent changes – If you’ve started a new job, received new benefits or had income changes, make sure your tax code reflects this.

Don’t let tax code errors cost you

Understanding your tax code is more than just deciphering numbers and letters on your payslip – it’s about making sure you’re paying the right amount of tax and claiming any refunds you’re entitled to. Tax code errors are common and can have serious financial consequences if not corrected.

When you claim your tax rebate with RIFT, our team of tax experts will thoroughly check your tax codes as part of our comprehensive service. We’ll ensure your tax code is correct with HMRC, identify any errors that may have led to overpayment and help you claim back every penny you’re entitled to.