What is tax code 1257L and what does it mean for your pay?

What is tax code 1257L?

The 1257L tax code is the most common tax code in the UK and applies to the majority of employees. It indicates the tax-free personal allowance of £12,570, which is the income you can earn before you start paying tax.

This code is typically used for people with one job and no untaxed income, benefits, or company perks. 

The tax code itself can be broken down: the '1257' refers to the allowance (with the final digit omitted), and the 'L' signifies that the individual is eligible for the standard personal allowance.

To better understand how tax code 1257L works, let’s look at a teacher who earns £30,000 a year. They have no other sources of income or benefits, and their tax code is 1257L, which allows them to earn £12,570 tax-free. The remaining £17,430 (£30,000-£12,570) is taxed at the basic rate of 20%. 

How much is the tax-free personal allowance?

The tax-free personal allowance for the current tax year is £12,570. This means that the first £12,570 of your income is not subject to income tax.

Any earnings above this amount are taxed according to the applicable tax bands. The 1257L tax code percentage ensures taxpayers can easily calculate their tax obligations based on their income. 

Why has my tax code changed from 1257L to 1157L?

Your tax code may change due to various factors, such as changes in income, employment status, or receipt of benefits.

For instance, your tax-free allowance may be reduced if you start receiving taxable benefits or additional income not previously accounted for. This change ensures you pay the correct amount of tax over the course of the year.

If someone had the tax code 1257L but recently started receiving a taxable company car benefit worth £1,000 per year, their tax code will change to 1157L.

This will reflect the reduced tax-free personal allowance (£12,570-£1,000 = £11,570). This adjustment ensures that they pay the correct amount of tax on their total income. 

Why is my tax code not 1257L?

There are several reasons why you might not have the 1257L tax code.

These include having multiple jobs, receiving untaxed income, or having taxable benefits.

If you’re on an emergency tax code, such as 1257LW1, 1257LM1 or 1257LX, your tax-free personal allowance is applied only to that specific pay period rather than the entire tax year.

It’s important to know how to identify emergency tax codes.

If your payslip shows an unfamiliar tax code, like 1257L W1 or 1257L M1, it could mean you’re being emergency taxed. This usually happens when HMRC doesn’t have enough information about your income.

How does a 1257L code calculator work?

A 1257L tax code calculator helps you determine your take-home pay by accounting for your personal allowance and applicable tax bands.

Here’s a simple way to calculate it:

• Start with your annual income.
• Subtract the tax-free personal allowance of £12,570.
• Apply the basic rate of 20% to the remaining income up to £50,270.
• For income above £50,270, apply the higher rate of 40%. 
• If you have an income of over £125,140, you’ll pay more tax and have to account for the tapered personal allowance. 

Various online calculators can simplify this process, allowing you to input your earnings and quickly see your expected tax and take-home pay.

You can also use this income tax estimator on the government’s website to assist you. 

Am I due a tax rebate?

A tax rebate occurs when you’ve paid more tax than you owe. This can happen if your tax code is incorrect or you had multiple jobs and your combined income was taxed too highly.

It’s not uncommon for people to overpay tax, especially if their circumstances change during the tax year and HMRC isn’t promptly updated.

For example, if an individual's tax code was 1257L, but they worked two jobs, their personal allowance might have been split incorrectly, causing them to overpay tax.

So they may be due a 1257l tax code refund. HMRC would send them a P800 form detailing any overpaid tax and how to claim their rebate.

If you receive a P800 form, you can claim your rebate online through your personal tax account on the HMRC website or by contacting HMRC directly. 

How do I check if my tax code is correct?

If an individual’s tax code was 1257L, but they recently started receiving a pension, their tax code should reflect this additional income.

If they receive their payslip and note that the code hasn’t been updated, this could potentially lead to underpayment or overpayment of taxes.

Here are the steps to follow to ensure accuracy:

• Check your latest payslip for your current tax code.
• Compare it with your expected income and benefits.
• Use the HMRC app to review and update your details.
• You can ask HMRC online to confirm your details.
• Contact the HMRC helpline on 0300 200 3310 if you find any discrepancies.

Get expert financial advice

Understanding your tax code is crucial for accurate tax payments and financial planning.

The 1257L tax code simplifies the tax process for many, but changes and discrepancies can occur. 

Regularly reviewing your tax code and knowing how to address issues can save you money and ensure you meet your tax obligations.

Unbiased can match you with a financial adviser who can provide expert financial advice on understanding and managing your tax code, ensuring you pay the correct amount of tax.

An accountant can also be useful, specifically for self-assessment.