Complete guide to understanding tax codes and ensuring they're working correctly
If you've ever looked at your payslip and wondered what those letters after your tax code mean, you're not alone. Tax codes like "1257L SL" or "BR PGL" can seem cryptic, but they directly affect how much money lands in your bank account each month. For anyone repaying student loans in the UK, understanding these codes is crucial because the wrong code can cost you hundreds or even thousands of pounds in overpaid deductions.
Your tax code tells your employer two things: how much tax-free income you're entitled to, and whether you should have student loan deductions taken from your pay. The letters matter just as much as the numbers, and when HMRC gets them wrong (which happens more often than you'd think), you end up paying more than you should.
A tax code is a combination of numbers and letters that HMRC issues to your employer to calculate your deductions. The number typically represents your tax-free Personal Allowance (divided by 10), while the letters indicate your circumstances. For the 2025/26 tax year, most people have the standard code 1257L, which means you can earn £12,570 before paying income tax.
The letter 'L' indicates you're entitled to the basic Personal Allowance with no adjustments. But when student loan letters appear in your code, that's HMRC instructing your employer to make additional deductions beyond tax and National Insurance.
Your employer doesn't decide whether you repay student loans. HMRC does, based on information they receive from the Student Loans Company. When something goes wrong in this communication chain, you end up with the wrong code and incorrect deductions.
The letters "SL" in your tax code stand for "Student Loan" and indicate you should have undergraduate student loan deductions taken through PAYE. When your tax code shows SL, your employer deducts 9% of everything you earn above your plan's repayment threshold.
If you're on Plan 2 with a tax code of 1257L SL and you earn £2,500 per month:
This happens automatically every month through PAYE, alongside your tax and National Insurance. The SL marker doesn't specify which plan you're on. That information comes from the Student Loans Company to HMRC. Your employer simply sees "SL" and applies the 9% deduction using whatever threshold they've been told to use.
The problem is that SL codes can appear in your tax code even after you've finished repaying your loan. If the Student Loans Company hasn't updated HMRC, you'll continue having deductions taken until you notice and intervene. This is surprisingly common in April each year when new tax codes are issued and old loan completions haven't been processed.
"PGL" stands for "Postgraduate Loan" and works similarly to SL, but with different rules. If you took out a postgraduate master's or doctoral loan, HMRC adds PGL to your tax code to trigger a 6% deduction on income above £21,000.
Someone earning £2,500 per month with a PGL marker:
Postgraduate loans were introduced in 2016 for master's degrees and 2018 for doctoral loans, so they're relatively new. Many employers and even some payroll systems are less familiar with PGL codes, which can lead to processing errors. If your payslip shows a "postgraduate loan" deduction but you've never taken one out, your tax code is definitely wrong.
If you have both an undergraduate and postgraduate loan, your tax code will show both markers. For example, "1257L SL PGL". This tells your employer to apply both deduction rates, which can significantly impact your take-home pay.
That's £1,533.48 per year in student loan repayments alone.
The combined effect means someone with both loans can face an effective marginal tax rate of 42% on earnings between £27,295 and the higher rate tax threshold. That breaks down as 20% income tax, 12% National Insurance, 9% undergraduate loan, and 6% postgraduate loan if earning above £21,000.
The Student Loans Company allocates your payments between the two loans, generally paying off undergraduate debt first before tackling the postgraduate balance. But from a take-home pay perspective, you're simply seeing 15% disappear from anything you earn above both thresholds.
Our student loan calculator can help you model exactly how combined repayments affect your monthly budget.
Before the loan letters, the numbers in your tax code indicate your tax-free Personal Allowance. The standard code for 2025/26 is 1257L, representing the £12,570 Personal Allowance divided by 10. Your employer uses this to calculate how much of your income is tax-free each month.
But not everyone has 1257L. Your code might be adjusted for other reasons:
Happen when you owe tax from previous years, have taxable benefits (like a company car), or receive other income that needs tax collected through PAYE. Someone with code 900L SL has £9,000 tax-free allowance, meaning they pay more tax and student loan deductions kick in sooner relative to their gross pay.
Means "Basic Rate" and is used for second jobs or pensions. A code like "BR SL" means you get no tax-free allowance on that income. You pay 20% tax on everything, plus 9% student loan if you're above the threshold across all your jobs combined. This is where serious overpayment problems occur with multiple jobs, because HMRC doesn't always split your threshold between employers correctly.
Are rare but indicate you owe more tax than your Personal Allowance covers, usually from company benefits. A code like "K200 SL" means you're taxed on an extra £2,000 of income beyond what you earn, and student loans still apply on top.
If you start a new job and don't provide a P45 from your previous employer, you'll usually get an emergency tax code, often shown as "1257L W1" or "1257L M1". The W1 or M1 means "Week 1" or "Month 1" basis, where your employer calculates tax and student loans based only on that pay period, without considering your cumulative earnings for the year.
Emergency codes typically include the SL marker if HMRC has you registered for student loan deductions. The problem with emergency codes is they don't accumulate your tax-free allowance properly. If you start a job in October on an M1 code, you don't get the benefit of the unused Personal Allowance from April to September, and you might face higher deductions than necessary.
For student loans specifically, emergency codes usually still apply the correct monthly threshold, so the immediate impact is less severe than for tax. But if you're moved onto the wrong student loan plan, you could be deducted at the wrong rate for months until it's corrected.
Wrong tax codes for student loans fall into several categories:
The most common issue. If you made your final payment but the Student Loans Company hasn't informed HMRC, your new tax code for the next tax year will still include SL. You'll have deductions taken until you spot it and request a refund. Some people lose thousands because they don't check their April payslip carefully.
If you've deferred repayments or recently updated your employment details with the Student Loans Company, HMRC might not have the latest information. You won't have deductions taken automatically, but you'll owe the money eventually through Self Assessment, often with interest added.
Your tax code shows SL, but your employer is using Plan 1 thresholds when you're actually on Plan 2, or vice versa. This creates significant over or underpayments because the thresholds differ by thousands of pounds. Plan 2's threshold is currently £27,295 while Plan 1's is £24,990.
You never took out a postgraduate loan, but HMRC has added PGL to your code anyway. This is often a processing error when someone with a similar National Insurance number has a postgraduate loan, and the records get crossed. You're losing 6% of your income above £21,000 unnecessarily.
Similar to the above. System errors can add loan markers you don't actually have. With both codes active, you're paying 15% instead of 9% or 6%.
Your tax code appears in three main places:
Look at the top section where personal details and tax information appear. The code should be clearly shown, usually on the left side. If it includes SL or PGL, that's your loan marker.
Log into your HMRC online account at gov.uk. Under "Pay As You Earn (PAYE)" you'll see your current tax code and any upcoming changes. This shows what HMRC has told your employer, which should match your payslip.
You receive a tax code notice (usually called a "PAYE Coding Notice" or P2) when your code changes. These arrive by post or through your online account. They list what's included in your code, including student loan deductions.
The Student Loans Company and HMRC don't communicate instantly. There's often a lag of several months between you finishing your loan repayments and HMRC updating your tax code. This lag creates a window where you'll be overcharged.
If your tax code is wrong, you need to contact HMRC directly. Not your employer and not the Student Loans Company first. Your employer can only act on instructions from HMRC, so asking them to change it won't work.
Call the Income Tax helpline on 0300 200 3300 or use the "Pay As You Earn (PAYE)" section in your Personal Tax Account to report the issue. Have your National Insurance number, payslips, and details of what's wrong ready.
If you've finished repaying your loan, tell them explicitly: "I've completed my student loan repayments but my tax code still includes SL." If you never had a postgraduate loan, state: "My tax code includes PGL but I've never taken out a postgraduate loan."
If you've already been overcharged, request a refund for all incorrect deductions. HMRC can go back up to four years. You'll need to provide payslips showing the wrong deductions. The refund usually comes through adjusted tax code in future months or a direct payment if the amount is large.
Once HMRC says they've corrected it, ask for the new code and when your employer will receive it. Check your next payslip confirms the change has been processed.
For complex situations (like discovering you've been on the wrong plan for years), you might also need to contact the Student Loans Company on 0300 100 0611 to clarify your actual plan and balance, then use that information when speaking to HMRC.
Having multiple jobs creates particular challenges with student loan codes. If you have two employers and both see SL in your tax code, they'll each apply deductions separately. But the threshold applies to your combined income, not each job individually.
Two jobs paying £1,500 per month each (£3,000 total, £36,000 annually):
However, the system often fails to do this correctly, leading to either:
Neither employer deducts student loans because each sees income below the threshold. You'll owe the shortfall through Self Assessment.
Both employers deduct based on the monthly threshold, effectively giving you two thresholds when you should only have one. You're overcharged every month and need to claim it back at year-end.
If you have multiple jobs, check that your tax codes make sense together. Ideally, your main job has your full personal allowance and student loan marker (1257L SL), while your second job has BR SL. If both jobs show the full 1257L code, or if the student loan markers are wrong, contact HMRC to fix it before you lose money.
To understand how much difference your tax code makes, consider these scenarios for someone earning £30,000 annually:
1257L SL, Plan 2
1257L SL PGL (no PG loan)
Should be paying: £0
These aren't small amounts. An incorrect PGL marker costs £540 annually on a £30,000 salary, and much more on higher incomes. Not noticing for two years means losing over £1,000. And because it's taken through PAYE, you don't see a bill or invoice. The money simply disappears from your payslip each month.
Your payslip should show student loan deductions separately from tax and National Insurance. Look for lines labeled:
The amount should make sense based on your income and threshold. A quick check: Take your gross pay, subtract your plan's monthly threshold, multiply by 9% (or 6% for postgraduate). If the deduction on your payslip is significantly different, investigate.
Some payslips also show year-to-date totals, which helps you track cumulative deductions. If your year-to-date student loan total seems high relative to your income, that's a red flag.
If you've discovered major overpayments spanning several years, or if HMRC disputes your claim that your code is wrong, you might need professional help. Tax advisers can handle complex cases, especially where:
The fees for professional help typically start around £200-£500 depending on complexity, but could be worthwhile if you're owed thousands in refunds.
Your tax code directly controls how much student loan deduction comes out of your pay each month. Those two letters (SL and PGL) might seem minor, but they trigger automatic deductions that can cost hundreds or thousands if they're wrong.
Check your tax code whenever you receive a new one, particularly in April. If you've finished repaying, made final payments, or never took out a particular loan type, verify your code is correct. Don't assume HMRC and the Student Loans Company have communicated properly. They often haven't.
Understanding your tax code gives you control. You can spot errors before they cost you serious money, challenge incorrect deductions with confidence, and ensure you're only paying what you actually owe.
Use our SL/PGL Notice Tax Code Impact Calculator to model different scenarios and understand what changing your tax code would mean for your monthly budget.
You can also check whether you're paying the right amount each month using our PAYE Period Threshold Calculator.
If you're dealing with multiple jobs and confused about how your student loan should be calculated across different employers, our Multiple Jobs PAYE Split Calculator breaks down exactly what each employer should be deducting based on your circumstances.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.