The tax code 1257L is the most commonly used tax code in the current and new tax year, which replaced tax code 1250L, which was used in the previous tax years 2019/20 and 2020/21 to signify the personal allowance rate of 12,500.
The name is derived from the personal allowance rate before you pay income tax, which is 12,570 for the current tax year in England and Northern Ireland. The personal allowance is applicable to almost all those who pay tax in the UK.
There are a few ways to check your tax code in the current tax year. You can find your current tax code on your latest payslip, next to your National Insurance number. By UK tax law, companies must provide employees with a payslip.
You can also use the Check Income tax tool on the government website, which will also show how much tax you are paying or have paid monthly.
It’s most likely that your tax code is 1257L, accounting for the tax-free personal allowance of £12,570. Meaning you will pay tax on any earnings above this amount. Depending on how much you earn over this amount will determine your tax rates. Most taxpayers receive their updated tax coding notice in February or March from HMRC.
When you first hire an employee, you can work out their initial code using the P45 form. Once processed by HMRC, you may be issued an updated tax code for your employee. The new tax code will be sent in the post but can also be viewed on HMRC’s PAYE online service for employers.
If you use any Payroll software, then tax codes can be received electronically.
For the tax year 2022/23, UK taxpayers can earn up to £12,570 tax-free personal allowance under the most common tax code, 1257L, before having to pay any income tax. As you can see, the most common tax code is made up of the personal allowance “1257”, with the last digit zero being dropped and replaced with an L.
With the tax code 1257L, you can claim up to £12,570 tax-free personal allowance per year, at a weekly personal allowance of £241 or £1,047 monthly without paying any income tax. Any earnings above this will be taxed at 20%, up to earnings of £50,270.
Earnings in excess of £50,271 and up to £150,000 will be taxed income tax at a rate of 40%. Any earnings above this will be taxed at the highest rate of 45%. If you’re a Scottish taxpayer, it’s worth noting that Scotland has introduced its own tax rates.
An emergency tax code is a tax code you’re put on if you either start a new job with no P45 provided, begin working for a new employer after you’ve ceased being self-employed, receive a state pension or have a second job. You may also get put on an emergency tax code if you have received company benefits like a company car for private use, for example.
The emergency tax codes are 1257 W1, 1257 M1, and 1257 X. The W1 and M1 mean it’s a code that is non-cumulative. This means that the tax due on each salary or payment is calculated without considering any tax you have already paid within the same year. It also does not consider how much of the personal allowance has been used. This can mean you can overpay in taxes.
While they are temporary, emergency tax codes are an interim solution while any relevant and necessary information is put together. Ending the tax year on an emergency code will mean HMRC will add up how much income tax you have paid and calculate if you owe any money at the end of the tax year; this is where they take into account your basic personal allowance. Following this, HMRC will send you a p800 outlining what you are owed and how it will be paid to you. If you’re self-employed, for example, you will be credited via your tax account.
On the other hand, you may be put on a basic rate tax code. A basic rate tax code means all income is taxed at a rate of 20%. Taxpayers earning over a certain amount will pay an additional rate on excess amounts of income over the basic rate allowance.
For most employees, the code 1257l will be the correct code. This is because it is suitable for employees with one job with no tax-deductible allowances or benefits apart from the standard personal allowance of £12,750 untaxed income. However, your tax code could be wrong if you change jobs, have more than one job, or if you start, leave or retire within the year.
The tax code 1257L could also be incorrect if you have another source of income, gain tax-deductible allowances, or gain any new taxable benefits such as a company van or car. It’s always worth ensuring you are the correct tax code and paying the correct amount of tax.
If you realise there is a mistake with your PAYE tax code or the tax coding system, or you are on the wrong tax code, you must gather all the relevant information and contact HMRC by phone or email to find the correct equivalent tax code.
The following details must be gathered before you contact HMRC:
Ensuring you have the correct tax code will help you to avoid any stressful situations relating to tax further down the line. If you have the wrong tax code and underpay tax, you will have to repay what you owe when it’s corrected. In some cases, you may not have the money to spare.
If there is an issue with your tax code, you will be paying the incorrect amount. If you’ve paid too much, the overpayment can be reclaimed within the deadlines outlined by HMRC.
You must repay HMRC if you’ve not paid enough, so it’s better to find out in plenty of time to avoid any issues related to unpaid tax further down the line.
As an employer, it’s your job to ensure your employee is on the correct tax code. If incorrect, you must notify HMRC as soon as possible with the relevant information we mentioned previously. Nearly everyone will be on the most popular tax code, 1257l, which accounts for the personal allowance of £12,570, which is tax-free unless your new employee has another job or income stream.
Any changes to an employee’s benefits or income, such as another job, pension, and changes to their tax-deductible allowances or professional subscriptions, for example, can affect how much tax they need to pay. Contact the HMRC tax office for more tax guidance.
The professional accountants at TaxBite are on hand to support you in ensuring you’re set up correctly.
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