Tax codes are an essential part of the UK tax system, as they determine how much Income Tax is deducted from your salary before you receive it.
While tax codes may seem like a random combination of numbers and letters, each component carries specific meaning and helps ensure that the right amount of tax is paid throughout the year.
One of the most common tax codes issued by HMRC is 1257L. If you have received a payslip with this code or noticed it on your tax documents, you may be wondering what it means and how it affects your earnings.
This article will explain what the 1257L tax code represents, who it applies to, and how it impacts your take-home pay. By understanding your tax code, you can ensure that you are paying the correct amount of tax and avoid any unexpected tax liabilities.
If you are unsure whether your tax code is correct or need help managing your tax affairs, Ryans’ tax advisory services can provide expert guidance.
What is the 1257L Tax Code?
A tax code is a series of numbers and letters assigned by HMRC to indicate how much tax-free income you are entitled to in a given tax year.
The tax code is used by employers and pension providers to calculate how much Income Tax should be deducted from an individual’s earnings under the PAYE (Pay As You Earn) system.
HMRC assigns tax codes based on several factors, including:
- Personal Allowance – the amount of income you can earn before paying tax.
- Additional Income – income from other jobs, pensions, or untaxed sources.
- Taxable Benefits – benefits provided by your employer, such as a company car or private health insurance.
- Previous Underpayments or Adjustments – any tax owed from previous years.
If your circumstances change, HMRC may update your tax code to reflect the new tax-free allowance available to you.
Breaking Down the 1257L Tax Code
The 1257L tax code is one of the most common tax codes used in the UK. Here’s what it means:
- The number 1257 represents the amount of tax-free income an individual is entitled to for the tax year. To determine this, multiply the number by 10, which gives a Personal Allowance of £12,570.
- The letter ‘L’ indicates that the taxpayer is entitled to the standard tax-free Personal Allowance with no additional adjustments.
How Does This Affect Take-Home Pay?
If your tax code is 1257L, you can earn up to £12,570 tax-free before any Income Tax is deducted from your salary. Any earnings above this threshold will be taxed according to standard PAYE tax bands:
- 20% tax on earnings from £12,570 to £50,270 (Basic Rate Taxpayer).
- 40% tax on earnings from £50,271 to £125,140 (Higher Rate Taxpayer).
- 45% tax on earnings above £125,140 (Additional Rate Taxpayer).
For example, if you earn £30,000 per year, the first £12,570 of your income will be tax-free. The remaining £17,430 will be taxed at 20%, resulting in £3,486 in Income Tax deductions.
Who Gets the 1257L Tax Code?
Employees and the Standard Personal Allowance
Most UK employees are assigned a tax code ending in ‘L’ if they are entitled to the basic Personal Allowance (the amount of income they can earn before they start paying Income Tax). The 1257L tax code means that the individual has a tax-free allowance of £12,570, meaning they do not pay tax on this portion of their earnings.
It’s important to note that while self-employed individuals still have a personal allowance, they do not have a tax code like employees do. Instead, they handle their taxes through Self Assessment, calculating their tax liability based on their total income and expenses.
Why Your Tax Code Might Be 1257L
HMRC assigns the 1257L tax code based on various factors. You are likely to have this tax code if:
- Your total annual income is below the higher-rate tax band, meaning you are a basic-rate taxpayer earning under £50,270.
- You do not receive taxable benefits in kind, such as a company car or private medical insurance. These benefits typically reduce your tax-free Personal Allowance, which would result in a different tax code.
- You have no underpaid tax from previous years that needs to be collected via your tax code. If you owe tax from a previous year, HMRC may adjust your code to collect this gradually.
- You have not informed HMRC of additional sources of income, such as rental income, investment earnings, or multiple jobs. If you earn extra income outside of your main job, your tax code may be different.
If you believe your tax code is incorrect, it’s essential to check with HMRC to ensure that you are not overpaying or underpaying tax.
How Does the 1257L Tax Code Affect Your Pay?
How Much Tax Will You Pay?
If you have the 1257L tax code, it means you can earn £12,570 tax-free in the current tax year. Any earnings above this threshold will be taxed according to the standard PAYE tax bands:
- 0% tax on income up to £12,570 (Personal Allowance).
- 20% tax on income between £12,570 and £50,270 (Basic Rate).
- 40% tax on income between £50,271 and £125,140 (Higher Rate).
- 45% tax on income above £125,140 (Additional Rate).
For example, if you earn £30,000 per year, your Income Tax is calculated as follows:
- The first £12,570 is tax-free.
- The remaining £17,430 is taxed at 20%, resulting in £3,486 in Income Tax deductions.
Impact on Take-Home Pay
Your take-home pay is affected not only by Income Tax but also by National Insurance Contributions (NICs). Employees earning above the NIC threshold (£12,570 per year) must contribute a percentage of their salary towards National Insurance, which helps fund state benefits such as the NHS and the State Pension.
For a £30,000 salary, deductions would include:
- £3,486 in Income Tax (as calculated above).
- National Insurance contributions of around £1,394, based on current rates (8%).
This means that after Income Tax and NICs, your estimated take-home pay would be around £25,120 per year.
Understanding your tax code and deductions ensures that you are budgeting correctly and not overpaying or underpaying tax.
If your financial circumstances change, such as receiving company benefits, a pay rise, or starting a second job, your tax code may be updated.
If you are unsure whether your tax code is correct, Ryans’ tax advisory services can provide expert support to help you check and update your tax code for accurate PAYE deductions.
Can the 1257L Tax Code Change?
Common Reasons for a Tax Code Change
Tax codes are not fixed and can change based on your financial situation, employment status, or updates from HMRC. Some common reasons why your tax code might change include:
- Receiving a company car or other taxable benefits – Benefits in kind, such as a company car, private healthcare, or accommodation, reduce your tax-free Personal Allowance, which can lead to a different tax code.
- Changes in the Personal Allowance threshold – If the government increases or decreases the standard Personal Allowance, your tax code would be adjusted accordingly.
- Underpaying or overpaying tax in a previous year – HMRC may amend your tax code to recover unpaid tax or adjust it to account for tax you overpaid.
- Starting a second job or side income – If you have multiple sources of income, your tax-free allowance may be split across different jobs, or one of your incomes may be taxed at a higher rate.
- Receiving additional income from pensions or investments – If you receive other taxable income, such as rental income or dividends, HMRC may adjust your tax code to reflect this.
How to Check or Update Your Tax Code
If your tax code has changed, or if you suspect it is incorrect, it’s essential to check it to avoid overpaying or underpaying tax. You can find your tax code on your:
- Payslip from your employer.
- P60 (issued at the end of the tax year).
- P45 (if you leave a job).
- HMRC online account via the Personal Tax Account portal.
If you believe your tax code is wrong, you should contact HMRC to update your details. You can do this:
- Online through your Personal Tax Account on the HMRC website.
- By phone, calling HMRC’s tax code helpline.
If you need assistance in understanding or correcting your tax code, Ryans can help review your tax position, liaise with HMRC on your behalf, and ensure you are paying the right amount of tax.
Common Mistakes and Misunderstandings About the 1257L Tax Code
Do You Need to Pay Extra Tax if You Have the 1257L Code?
Your tax code determines how much Income Tax is deducted automatically under the PAYE system. If you only have one job and no other taxable income, the 1257L tax code should deduct the correct tax automatically.
However, tax underpayments can occur in certain situations, such as:
- Having multiple jobs – Your tax-free allowance is usually assigned to one job, meaning income from other jobs could be taxed at the basic rate or higher.
- Receiving additional taxable income – If you receive income from pensions, rental properties, or investments, you may owe more tax than what is deducted through PAYE.
- Incorrect tax code assignment – If HMRC applies the wrong tax code, you may end up paying too much or too little tax.
Does 1257L Mean You Don’t Pay Tax?
No, the 1257L tax code does not mean you are completely exempt from tax. It simply means that you won’t pay tax on the first £12,570 of your earnings. Any earnings above this threshold are taxed according to the standard Income Tax bands.
For example, if you earn £30,000 per year:
- The first £12,570 is tax-free.
- The next £17,430 is taxed at 20%, meaning you will pay £3,486 in tax.
This is why it’s important to understand how your tax code works and ensure that you are not underpaying or overpaying tax.
Common Questions About the 1257L Tax Code
What does 1257L mean?
The 1257L tax code means you have a Personal Allowance of £12,570, meaning you won’t pay tax on this portion of your income. Any earnings above this threshold will be taxed at the standard rates.
Will my tax code always be 1257L?
No, your tax code can change based on factors such as receiving taxable benefits, having multiple income sources, or adjustments from HMRC for underpaid or overpaid tax.
How do I check if my tax code is correct?
You can find your tax code on your payslip, P60, P45, or check it through HMRC’s online services. If you think it’s incorrect, contact HMRC or speak to a tax advisor like Ryans to review your tax position.
Can I be on 1257L if I have more than one job?
Usually, your Personal Allowance is assigned to your main job, and your second job may have a different tax code, such as BR (Basic Rate, taxed at 20%). If you have multiple jobs, HMRC may adjust your tax code to ensure the correct tax is deducted.
What should I do if I have been given the wrong tax code?
If you believe your tax code is incorrect, you should contact HMRC immediately to update your details. If you’re unsure, Ryans can help review your tax position, check for errors, and liaise with HMRC on your behalf.