What Is the Emergency Tax Code and How to Fix It

Alan Bermingham

10 Years of Expertise in Fintech Innovation

3 min read

What you need to know?

When you see your payslip has suddenly shrunk, an emergency tax code might be the culprit. This temporary measure can take a bigger bite from your salary than you expect, often when you’re between jobs or starting new employment. An emergency tax code is actually a temporary emergency tax code, used as a short-term solution until your correct tax code can be determined.

I remember starting a contract role and being shocked when my first payslip was nearly £400 short. The culprit? An emergency tax code that took weeks to correct. For example, if you are put on an emergency tax code, you might pay significantly more tax than usual, leaving you with much less take-home pay until the issue is resolved.

It’s a common issue that affects thousands of UK workers every year, but understanding how it works can help you get your money back faster. Or if you’re just here to get to grips with it all, let’s break it down!

What's an emergency tax code and why does it exist?

An emergency tax code is a temporary measure HMRC uses when they don’t have enough information about your income or tax position. It usually appears as “1257L W1”, “1257L M1”, or “1257L X” on your payslip. These codes affect the amount of income tax deducted from your pay.

Unlike a regular tax code, emergency codes work on a non-cumulative basis. This means tax is calculated solely on each individual pay period, based on your taxable income for that period, ignoring any unused tax allowances from previous months. This can also impact your entitlement to tax relief, as emergency codes may prevent you from receiving your full personal allowances.

Emergency codes exist to ensure tax is collected while your correct tax position is being sorted out. Think of it as a holding pattern until all your details are properly processed. However, being on the wrong tax code can result in paying too much or too little tax, leading to further complications.

If you are placed on the OT tax code, all your income is taxed without any personal allowance, and you may end up paying the higher rate or even additional rate tax if your earnings exceed the relevant thresholds.

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Types of Emergency Tax Codes

Emergency tax codes come in several forms, each affecting your pay in different ways. The most common is the BR tax code (Basic Rate), which means all your income is taxed at 20% with no tax free allowance applied. This can result in paying too much tax, especially if you’re entitled to a personal allowance.

Another type is the OT tax code, which also ignores your personal allowance and taxes all your earnings at the appropriate rate for your income level. This code is often used when HMRC or your employer doesn’t have enough information about your previous income or tax paid.

You might also see the 1257L emergency tax code with suffixes like W1 (week 1) or M1 (month 1). These codes give you a portion of the standard personal allowance (£12,570 for the current tax year), but only on a non-cumulative basis. That means you get a tax free allowance for each pay period, but any unused allowance from earlier in the year isn’t carried forward, which can still lead to paying more tax than you should.

Understanding which emergency tax code you’ve been given can help you figure out why you’re being taxed more and what steps to take to get back on the correct code. Always check your payslip for these codes and act quickly if you think you’re paying too much tax.

When might you end up on emergency tax?

Starting a new job without a P45 is the most common reason for emergency tax. Without this document, your new employer lacks crucial information about your earnings and tax paid so far. This often happens when you join a new company and your payroll information is incomplete.

Returning to work after receiving benefits, starting your first ever job, becoming a company director, or moving to an employer after being self-employed can also trigger emergency tax codes. If you transition from self-employment to employment, you may need to provide additional documentation to ensure your tax code is updated correctly.

Significant life changes mid-tax year, like getting a company benefit, receiving a benefit such as the State Pension, taking on more than one job, or accessing your pension income, might also land you on an emergency code temporarily. When you access your pension income, your pension provider is responsible for applying the correct tax code, and errors can result in emergency tax.

To avoid issues, it's important that your employer or pension provider is sending details of your previous income, benefits, or pension to HMRC so your tax code is assigned correctly.

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Emergency Tax and New Employees

If you’ve just started a new job, you might find yourself on an emergency tax code, especially if your new employer hasn’t received all your income details from your previous job. This often happens when you don’t provide a P45 form, or if there’s a delay in processing your information.

Being put on an emergency tax code means you could miss out on your full tax free personal allowance, resulting in too much tax being deducted from your pay. This is a common issue for new employees, but it’s usually temporary. Once HMRC receives the correct details either from your employer or directly from you your tax code will be updated, and any overpaid tax will be refunded.

To avoid paying more tax than necessary, always check your payslip for your tax code, and make sure your employer has all the information they need. If you notice you’re on an emergency tax code, contact your employer or HMRC to get it corrected as soon as possible.

How does emergency tax affect your wallet?

The biggest impact is usually paying more tax than necessary. Since emergency codes don’t account for your full personal allowance across the tax year, they often result in higher deductions from your wages when you pay tax. Your tax code determines how much tax HM Revenue & Customs deducts, so an incorrect or emergency code can mean you pay more than you should.

For someone paid monthly, you’ll only get 1/12 of your personal allowance each month rather than the cumulative amount you’re entitled to since April.

This can create a noticeable dip in your take-home pay, which is especially frustrating if you’re settling into a new job with all the expenses that can involve. Emergency tax codes can also affect the payments you receive, so it’s important to check your records to ensure you’re being paid correctly.

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How to spot if you're on emergency tax

Check your payslip for tax codes ending in W1, M1, or X – these are the telltale signs of emergency tax. The current basic emergency code for 2023/24 is 1257L with one of these suffixes.

Compare your recent net pay with previous payslips. An unexplained drop might indicate emergency tax has been applied, or that you are on the wrong tax code.

You can also log into your HMRC online personal tax account to view your current tax code, or simply ask your payroll department which code they’re using for you. When checking your tax code, make sure your national insurance number is correct, as this ensures your records are accurate and helps resolve any issues quickly.

Getting your money back

The good news is you can reclaim any tax overpaid due to emergency codes. HMRC typically refunds overpayments automatically once they have the correct information.

If you're still waiting after your tax code is fixed, you can submit a P87 form for smaller claims or include it in your Self Assessment tax return for larger amounts.

Keep all your payslips and tax documentation as evidence of overpayment. Once processed, refunds usually appear in your next payslip or as a direct bank transfer from HMRC.

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Final Thoughts

Emergency tax codes are a temporary inconvenience, not a punishment. They're simply HMRC's way of collecting tax while missing pieces of your tax puzzle are gathered.

Staying vigilant about your tax code and acting quickly when you spot an emergency code can save you from financial strain. It can also get your correct take-home pay restored faster.

Remember that reclaiming overpaid tax is your right, not a favour so don't hesitate to follow up if you think you're owed money back.

Pie: Simplifying Emergency Tax Code Headaches

Emergency tax codes can throw your monthly budget into chaos when you least expect it. The UK's first personal tax app, Pie, monitors your tax codes in real-time, alerting you immediately when changes occur.

Our smart system detects emergency codes before your next payday, giving you time to take action. We'll even help prepare the documentation needed to get you back on the correct code faster.

For those juggling multiple jobs or income sources, our dashboard tracks all your tax codes simultaneously. This reduces the risk of emergency codes being applied due to incomplete information.

We've helped thousands of users recover overpaid emergency tax without the stress of navigating HMRC's systems alone. Our guided process makes reclaiming what's yours straightforward and quick.

Curious about how we could help you avoid emergency tax surprises? Take a look at Pie.tax and see how we're making personal tax management simpler for everyone.