Why is my tax so high?

When you start a new job without handing over a P45, your employer does not know your earnings history for the tax year. To avoid under-collecting tax, HMRC puts you on an emergency code — usually 1257L W1/M1 or sometimes 0T.

The W1/M1 suffix means your tax is calculated on a week-by-week or month-by-month basis rather than cumulatively. So instead of spreading your Personal Allowance across the year, it is applied fresh each period — which can mean you pay too much in the early months of a job.

A 0T code gives you no Personal Allowance at all, meaning everything you earn is taxed from the first pound.

Your Personal Allowance (£12,570 in 2025/26) can only be used against one source of income — usually your main job. Any second job, freelance income, rental income or pension that HMRC knows about will be taxed with no allowance against it.

HMRC typically assigns a BR code (Basic Rate — flat 20%) or D0 (Higher Rate — flat 40%) to your second income source. This can look alarming on a payslip, but it is correct — you have already used your allowance elsewhere.

If your total combined income from both jobs keeps you in the basic rate band, BR is right. If it pushes you into the higher rate, D0 applies.

Tax codes are set automatically by HMRC based on information it holds about you. That information can be out of date, incorrect, or missing — and a wrong code can cost you significantly.

Common errors include: a benefit in kind (company car, private medical) still showing when it has ended; a previous year's underpayment still being collected through a reduced code; state pension or other income being over-estimated; a marriage allowance transfer not being applied; or simply a coding notice being misread by your employer.

The easiest way to spot a wrong code is to check your Personal Tax Account at gov.uk — it shows exactly why your code is what it is.

Student loan repayments are collected through PAYE alongside income tax and National Insurance — so they appear as an extra deduction on your payslip. They are not actually tax, but they reduce your take-home pay in the same way.

Repayments begin in April after you finish your course, once your income crosses the threshold for your plan:

- Plan 1: £24,990/year (£2,082/month) - Plan 2: £27,295/year (£2,274/month) - Plan 5: £25,000/year (£2,083/month) - Postgraduate Loan: £21,000/year (£1,750/month)

You repay 9% of earnings above the threshold (6% for postgraduate). So on a £35,000 salary with Plan 2, you repay 9% of (£35,000 - £27,295) = £693/year, or £58/month.

If your employer provides perks with a cash value — a company car, private health insurance, a gym membership, interest-free loans over £10,000, or living accommodation — these are 'benefits in kind' and are taxable.

HMRC calculates the taxable value of each benefit and reduces your tax-free Personal Allowance accordingly, rather than adding it to your salary. This means you pay the right tax on the benefit through your PAYE code without seeing the income directly.

A company car worth £8,000 in benefit value for a basic rate taxpayer costs £1,600 in extra tax per year (£133/month). Higher rate taxpayers pay £3,200/year. This can make your tax look disproportionately high relative to your visible salary.

Workplace pension contributions are not income tax — but they reduce your take-home pay and can cause confusion. Under auto-enrolment, employers must contribute at least 3% of qualifying earnings, and employees contribute at least 5% (totalling 8%).

If you have recently been enrolled (typically when you turn 22 or start a new job), you may notice a sudden drop in take-home pay. On a £30,000 salary, 5% employee contributions = £1,500/year or £125/month less in take-home.

The good news is that pension contributions made through salary sacrifice or relief at source reduce your taxable income, which slightly offsets the cost.

If you underpaid tax in a previous year — perhaps because HMRC miscalculated a benefit in kind, you received a P800 showing you owed money, or your code was too generous — HMRC can collect the shortfall through a reduced tax code in the current year.

This appears as a lower-than-normal tax code (e.g. 857L instead of 1257L), which means less income is tax-free each month and you effectively repay the prior debt slowly across the year.

Amounts under £3,000 are usually collected this way. Larger amounts may trigger a separate demand.