Tax codes are a hot topic at the moment as HM Revenue and Customs (HMRC) has now emailed or posted notifications of changes to tax codes for the 2022/23 tax year to an estimated 12 million people across the UK.
A tax code is used by an employer or pension provider in order to work out how much Income Tax to take from an individual's pay or pension.
Tax code 1257L will be the most widely used tax code for the 2022/23 financial year and is expected to be unchanged until 2026 as it only replaced the previous tax code - 1250L - for the 2021/22 period.
Most taxpayers receive an updated tax coding notice from HMRC in February or March each year and it's important to make sure it's correct as it is used to calculate how much tax you will pay.
The new tax codes are used after the start of the next financial year on April 6, which means most employees will now be able to check if their tax code is correct on their April payslip.
What Is Tax Code 1257L?
The personal allowance is the amount a UK taxpayer can earn tax free for the tax year, 2022/23, which works out at £12,570.
What the numbers mean
The numbers in an employee’s tax code show how much tax-free income they get in that tax year, this is known as your Personal Allowance.
You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed.
For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £27,000 per year, their taxable income is £14,430 (£27,000 - £12,570).
What the letters mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance.
The full list of tax code letters and what they mean can be found on the GOV.UK website here.
Here are the most commonly used letters
-
L - For an employee entitled to the standard tax-free Personal Allowance
-
S - For an employee whose main home is in Scotland
-
BR/ SBR - For a second job or pension
-
M - For an employee whose spouse or civil partner has transferred some of their Personal Allowance
-
N - For an employee who has transferred some of their Personal Allowance to their spouse or civil partner
-
T - When HMRC needs to review some items with the employee
Emergency tax codes
The emergency tax codes from 6 April 2022 are:
- 1257L W1
- 1257L M1
- 1257L X
Blind Person's Allowance
Blind Person’s Allowance is added to your yearly Personal Allowance.
Tax year
- 2022 to 2023 - £2,600
- 2021 to 2022 - £2,520
Find out more about Blind Person's Tax Allowance on the GOV.UK website here.
How to check your tax code
The easiest way to do this is to look at your payslip.
One you have a note of your Personal Allowance tax code, you can go to the GOV.UK website and use the online 'check your Income Tax for the current year' service.
This tool, which covers the current tax year, can be used to check your tax code and Personal Allowance, and to see if a tax code has changed.
Other options available through this online service include allowing users to see an estimate of how much tax they will pay over the whole tax year.
However, the service cannot be used by self-employed workers.
Find out more about making sure your tax code is correct on the GOV.UK website here.
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