Demystifying UK Tax Code 1257L

Published on September 15, 2022

Tax CodesPersonal Allowance

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Tax code 1257L is a common code that many people encounter in the UK tax system. In this guide, we'll explain what it means, how it affects your income, and why having the correct tax code is crucial.

Understanding Tax Code 1257L

Your tax code is a unique combination of numbers and letters that determines how much income you can earn before you start paying income tax. Tax code 1257L is one of the most frequently used tax codes and signifies the following:

  • The "1257" part represents the tax-free personal allowance, which is the amount of money you can earn without paying income tax.
  • The letter "L" indicates that you are entitled to the standard personal allowance.

In simple terms, if your tax code is 1257L, it means you can earn £12,570 each year before you are liable to pay income tax.

Tax Calculation with Code 1257L

With a tax code of 1257L, your yearly tax-free allowance is £12,570. This allowance is divided evenly over the course of a year. Here's how it breaks down by payment frequency:

  • Weekly: £241
  • Monthly: £1,047

Any income you earn beyond this tax-free allowance is subject to income tax. The tax rates for different income bands in the 2023/24 tax year are as follows:

  • 20% tax on income between £12,571 and £50,270.
  • 40% tax on income between £50,271 and £125,140.
  • 45% tax on income over £125,140.

Please note that Scotland has its own tax rates that may differ slightly from the above figures.

Adjustments to Your Tax Code

Your tax code can be adjusted based on various factors, such as allowances and benefits. Here's how these adjustments work:

Allowances

Some allowances can increase your tax-free income. For example, if you have an allowable expense like Chartered Accountancy subscriptions, this cost is added to your personal allowance, resulting in a higher tax-free allowance.

For instance, if your personal allowance is £12,570, and you have allowable expenses of £500, your tax code may be adjusted to 1307L.

Benefits

Benefits you receive can decrease your tax-free allowance. For instance, if you receive benefits from your employer, such as medical benefits or a company car, these benefits reduce your overall tax-free allowance.

Your tax code may be adjusted to reflect this reduced allowance. For example, with medical benefits and a company car, your tax code may be adjusted to 669L.

Importance of Your Tax Code

Your tax code is critical because it tells your employer how much income you can receive tax-free. If your tax code is incorrect, you could end up paying the wrong amount of tax.

For example, someone with a tax code of 669L would pay more in Pay As You Earn (PAYE) tax each month compared to someone with a tax code of 1257L.

How to Check Your Tax Code

HMRC (Her Majesty's Revenue and Customs) sends out PAYE coding notices (P2) between January and March each year. This document contains your tax code and explains any adjustments made to it.

If you haven't received a P2 notice, you can check your personal tax account online or contact HMRC at 0300 200 3300.

Correcting Your Tax Code

If you believe your tax code is incorrect, it's essential to contact HMRC at 0300 200 3300 immediately. Addressing the issue promptly can prevent tax errors and save you from overpaying or underpaying taxes.

Your tax code should match your specific financial situation, and it can quickly go wrong if any changes occur. Some common scenarios that might lead to an incorrect tax code include changing jobs, having multiple sources of income, or receiving taxable benefits.

Don't hesitate to reach out to HMRC if you suspect your tax code is incorrect. They can help ensure your tax code accurately reflects your circumstances.

Historical Tax Codes

In the past, personal allowances increased annually, resulting in small adjustments to tax codes. However, recent changes have frozen personal allowances at £12,570. Here are some historical tax codes:

  • 2022/23 Tax Year: 1257L
  • 2021/22 Tax Year: 1257L
  • 2020/21 Tax Year: 1250L
  • 2019/20 Tax Year: 1250L
  • 2018/19 Tax Year: 1185L

Your tax code plays a significant role in determining your tax liability, so it's important to understand it and ensure it accurately reflects your financial situation.

Sources

GOV.UK

What your tax code means

Tax Code 1257L - How to Check Your Tax Code is Correct?

Standard tax code 1257L

What is a 1257L tax code?

Key Portfolio My tax code is 1257L - what does it mean?