Are you feeling sad about seeing the OT tax code on your payslip? You have to pay tax on every pound of your earnings at the standard tax rate under this code. You wondered why I am paying so much tax from the start.
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Understanding this tax code can be overwhelming due to the tax complexity. HMRC hasn’t allowed you any tax-free personal allowance for your job because they do not have enough information about your tax history to work out your correct allowance.
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But the OT code is rarely permanent. It often works as a placeholder. You can return the overpayment after you correct it with HMRC. At TAJ Accountants, we will break down exactly what triggers an OT tax code and how it affects your take-home pay.
What is an OT Tax Code?
The OT or 0T tax code means you owe no tax-free Personal Allowance on your earnings through PAYE. Your total income is fully taxable until your code is updated. Even if you pay under the correct tax bands, it is paid without owing any tax-free allowance.
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It is an emergency tax code issued by HMRC due to insufficient information about your income. It is an emergency tax code provided by HMRC due to a lack of information about your income, a new job without a P45, or using all allowances from the previous job
Why Do You Have an OT Tax Code?
HMRC usually introduces the tax code 0T when they don’t have sufficient information about your income. Most common reasons include:Â
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Missing Information:Â HMRC does not have enough information about your income when you start a new job or change jobs without completing a starter checklist.
Used-Up Allowance: Your tax-free Personal Allowance, currently £12,570 for most people, is already allocated to another job or pension.
High Earner: You exceed your highest income threshold of £125,140, meaning HMRC has totally withdrawn your Personal Allowance, and HMRC has not updated your records.
Multiple Income Streams:Â If you have multiple income sources, your Personal Allowance can be used up elsewhere. For example, you receive income from a second job and claim a state pension at the same time.
Administration Delays: HMRC couldn’t update your records because you are moving to a new employer before HMRC updates them
How OT Code Affects Your Pay
The OT tax code removes your Personal Allowance completely. This means every pound you earn is taxed from the first penny. Unlike the standard 1257L tax code, there is no tax-free income before Income Tax is deducted.
The amount of tax you pay depends on which Income Tax bands your earnings fall into. For the 2026/27 tax year, income is generally taxed at 20% up to £37,700, 40% between £37,701 and £125,140, and 45% on income above £125,140. Under an OT tax code, you also lose the benefit of carrying forward any unused Personal Allowance from earlier in the tax year.
An OT tax code can operate on either a cumulative or non-cumulative basis. Under a cumulative code, HMRC adjusts your tax position throughout the tax year as more information becomes available. However, if your code is shown as OT W1 or OT M1, only the current week’s or month’s pay is considered, with no adjustment for earlier pay periods. This is the more common version and often results in higher tax deductions.
The impact on your take-home pay can be significant. For example, someone earning £3,000 a month on an OT tax code at the basic rate could pay around £600 in Income Tax, compared with approximately £349 under the standard 1257L tax code.
The rates above apply to taxpayers in England, Wales, and Northern Ireland. Scottish taxpayers are subject to different income tax bands set by the Scottish Government, which use separate percentage tiers.
How to Fix Your OT Tax Code
An OT tax code is usually temporary, but it will not be corrected unless the necessary information is provided. Taking the following steps can help resolve the issue as quickly as possible.
Check why the OT code was assigned
Start by identifying the reason for the OT tax code. It is commonly issued when you start a new job without a P45 and have already used your Personal Allowance against another source of income. Or HMRC does not yet have enough information about your employment. Understanding the cause will make it easier to resolve.
Contact HMRC
If you believe the code is incorrect, contact HMRC or update your details through your Personal Tax Account on GOV.UK. Provide your current employment details, any additional income sources, and confirm whether you have a P45 from your previous employer. Once HMRC has the correct information, they will issue an updated tax code to your employer.
Provide your P45 to your employer
If you have recently changed jobs and have not given your new employer your P45, do so as soon as possible. This enables them to apply the correct tax code without waiting for HMRC to complete the update.
Claim back any overpaid tax
If you have overpaid tax while on an OT tax code, it is usually refunded automatically once the correct cumulative tax code is applied. However, if HMRC issues a W1 or M1 code, you may need to claim the refund directly from HMRC through your Personal Tax Account or after the tax year ends.
Check your new tax code
When HMRC issues a replacement tax code, check that it reflects your circumstances correctly. If you have multiple jobs, pensions, or taxable benefits, it is worth confirming that the new code accurately accounts for all of your income.
Difference Between OT & BR Tax Codes
Both OT and BR tax codes remove your Personal Allowance, but they apply in different situations and calculate Income Tax differently.
Feature | BR Tax Code | OT Tax Code |
Personal Allowance | Removed | Removed |
Tax Rate Applied | Flat 20% on all income | 20%, 40%, and 45%, depending on earnings |
Who It Applies To | Second job or additional pension | New job without a P45, or where your Personal Allowance is used elsewhere |
Predictability | Consistent – always taxed at 20% | Variable – depends on your total earnings |
Higher Earner Impact | Taxed at 20%, regardless of income | Higher earners may pay 40% or 45% on part of their income |
Cumulative or Non-Cumulative | Usually non-cumulative | Can be cumulative or non-cumulative (often W1/M1) |
Although the two tax codes are often confused, they serve different purposes. If you are placed on either code unexpectedly, it is worth checking the reason. An incorrect tax code can lead to overpaying or underpaying tax, so resolving the issue early can help avoid unnecessary deductions or future tax bills.
Is OT an Emergency Code?
Not exactly, although it is often confused with one.
Emergency tax codes, such as 1257L W1 or 1257L M1, apply your standard Personal Allowance on a non-cumulative basis. The OT tax code goes a step further by removing your Personal Allowance altogether, meaning every pound you earn is taxed from the first penny.
An OT tax code is usually applied when HMRC has no record of your available Personal Allowance. This commonly happens if you start a new job without a P45 or if your full Personal Allowance is already being used against another source of income.
While both OT and emergency tax codes are temporary and can result in higher tax deductions, they are not the same. An emergency tax code still gives you your Personal Allowance, whereas an OT tax code does not. If you see an OT tax code on your payslip, it is worth checking it as soon as possible to avoid paying more tax than necessary.
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How Will TAJ Accountants Help You?
An OT tax code can result in you paying far more tax than necessary until it is corrected. At TAJ Accountants, we can help by:
- Identifying why your OT tax code has been applied.
- Contacting HMRC on your behalf to get the correct tax code issued.
- Checking that your replacement tax code is accurate.
- Ensuring multiple jobs, pensions, or taxable benefits are correctly reflected in your tax codes.
- Calculating any overpaid tax and helping you reclaim it through PAYE or directly from HMRC.
- Make sure your PAYE records and MTD submissions are aligned.
TAJ Accountants is a small business accounting firm helping individuals and employers across London resolve tax code issues quickly and accurately. Book a free consultation with our team to make sure you’re paying the right amount of tax and not losing money unnecessarily.
Conclusion
An OT tax code means you pay Income Tax from the first pound you earn, with no Personal Allowance applied. Although it is usually temporary, it can significantly reduce your take-home pay until the correct tax code is issued.
In most cases, the problem is straightforward to fix. Whether it is caused by a missing P45, an incomplete employment record, or another source of income, providing HMRC with the correct information will usually resolve it. Acting quickly can help ensure you pay the right amount of tax and avoid unnecessary overpayments. Book a free consultation with TAJ Accountants to know more details about the OT tax code.
Frequently Asked Questions
An OT tax code means you no longer receive a Personal Allowance, so every pound you earn is taxed from the first penny. It is commonly used when you start a new job without a P45, your Personal Allowance is being used against another source of income, or your income exceeds £125,140, reducing your allowance to zero.
With an OT tax code, all of your income is taxed at the applicable Income Tax rates without any tax-free allowance. For the 2026/27 tax year, this means 20% on earnings up to £37,700, 40% between £37,701 and £125,140, and 45% above £125,140. For example, someone earning £30,000 could pay around £6,000 in tax under an OT code, compared with approximately £3,500 under the standard 1257L tax code.
An OT tax code is usually temporary. It remains in place until HMRC receives the information needed to issue the correct code, such as your P45, a completed Starter Checklist, or updated employment details. Once processed, HMRC will send the revised tax code to your employer, typically within a few weeks.
Yes. If an OT tax code was applied incorrectly and you have overpaid tax, you are generally entitled to a refund. If HMRC issues a cumulative tax code during the tax year, the refund is usually made automatically through PAYE. If a W1 or M1 code is issued instead, you may need to claim the overpaid tax directly from HMRC through your Personal Tax Account or wait for a P800 tax calculation after the end of the tax year.
Both OT and BR remove your Personal Allowance, but they calculate tax differently. A BR tax code applies a flat 20% tax rate to all income and is commonly used for second jobs or pensions. An OT tax code applies the normal Income Tax bands, meaning higher earners may pay 40% or 45% on part of their income. HMRC will usually apply an OT code where using a BR code could result in an underpayment of tax.
Yes, although Scottish taxpayers will usually see S0T instead of OT on their payslip. The principle is the same; no Personal Allowance is applied. But Scottish Income Tax rates and bands are used instead of those for the rest of the UK.
