If you’re an employee in the UK, you’ve probably noticed that your payslip contains a tax code, which is used by your employer to calculate how much income tax to deduct from your earnings. One of the most common tax codes used in the UK is 1257L – but what does it mean?
Put simply, the tax code 1257L indicates that you’re entitled to the standard Personal Allowance, which is the amount of income you can earn each year before you start paying income tax. The current Personal Allowance in the UK is £12,570 for the 2022/23 tax year, which means that if your tax code is 1257L, you can earn up to this amount without paying any income tax..
So, what do the numbers and letters in the tax code actually mean? The “L” in 1257L stands for “Liable to tax at the basic rate”, which means that you’re a basic rate taxpayer. Currently, the basic rate of income tax in the UK is 20%, which means that once you’ve earned more than your Personal Allowance, you’ll pay 20% tax on any additional income.
The number 1257 in the tax code represents the amount of your Personal Allowance. So, if your tax code is 1257L, your Personal Allowance for the 2022/23 tax year is £12,570. However, if you have any other sources of income or benefits, or if you have a different tax code, your Personal Allowance may be different.
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It’s worth noting that if you earn more than a certain amount in a tax year, your tax code may be adjusted to reflect this. For example, if you have a second job or receive a pension, your tax code may be changed to reflect the fact that you’ve already used some of your Personal Allowance. Similarly, if you have savings interest or rental income, you may need to pay tax on this income separately.
If you’re unsure about your tax code or how it’s calculated, you can check with your employer or HM Revenue and Customs (HMRC) who can provide guidance and support. By understanding your tax code, you can ensure that you’re paying the correct amount of income tax and avoid any unexpected tax bills in the future.