Your tax code tells your employer or pension provider how much tax-free pay you get before income tax starts. The numbers are your allowance with the last digit removed and the letters flag your situation: 1257L is the standard code, BR taxes everything at 20%, K codes mean deductions exceed your allowance, and S or C prefixes apply Scottish or Welsh rates.
A wrong code is the most common reason people overpay or underpay tax, especially after changing jobs, getting a company benefit or having more than one income. Check yours against our tax code guides, which explain every common code and what to do if it looks wrong.
A £4,000 company benefit turns the standard 1257L into 857L (£12,570 minus £4,000, last digit dropped). And the cost of a wrong code is real: someone on £30,000 left on a BR code pays £6,000 in tax instead of the correct £3,486, overpaying £2,514 a year until it is spotted.
