Tax Codes are used to determine at what level of income you should start paying tax in a particular employment because both income and National Insurance kick in above a certain level of income. The standard tax code (currently 1257L) assumes that the employee has no other income except the employment they are in.

When a tax code changes it is usually because HMRC has become aware of some other income, whether that is a dividend or a second employment or trading. This other income is then factored into the level at which tax starts to be deducted.

Another factor can be when HMRC wishes to collect over or underpayments of tax.