Your tax code is used by your employer and/or pension provider to calculate the amount of income tax to deduct. If it’s wrong you’re either paying too much, or not enough, income tax.
1257L tax code
The most common tax code for the 2022-23 tax year is 1257L. It means that you are entitled to the full Personal Allowance of £12,570. And, as the tax free Personal Allowance amount is locked in until 2026, this will remain the most common tax code until then.
What’s the 2022/2023 Personal Allowance got to do with my tax code?
The numbers in your tax code refer to how much Personal Allowance you’re entitled to.
- 1257 X 10 = 12,570 the Personal Allowance rate is £12,570
So everything you earn up to £12,570 is tax free. And everything after that is taxed at the appropriate Basic, Higher or Additional rate of income tax for your income.
For example
You earn £25,000 per year and are entitled to the full Personal Allowance of £12,570. What do you pay tax on?
You don’t pay any tax on that first £12,570. But then you’ll pay Basic Rate of 20% income tax on the remaining £12,430. (£25,000 – £12,570 = £12,430)
Your tax code is how HMRC, you and your employer all know your tax position. It’s really crucial to make sure it’s right.
What about the letters?
The letters all stand for a piece of information that’s necessary to calculate how much income tax you owe. Some tax code letters are used in all 4 UK countries, for example:
- L: You get the full personal allowance amount
- M: Your spouse or civil partner has transferred some of their Personal Allowance to you
- N: You’ve transferred some of your Personal Allowance to your civil partner or spouse
- T: Income over £100,000, Personal Allowance goes down by £1 for every £2 over £100,000. So your number will show how much Personal Allowance you’re now entitled to, with the suffix ‘T’.
Other letters and letter combinations are only used in certain countries of the UK. That’s because the Scottish and Welsh governments have devolved powers to set their own income tax rates and bands. The Personal Allowance rate is the same across the UK.
England and Northern Ireland
- OT: You’ve used your full Personal Allowance, or you’ve got a new employer and they don’t have the right information to give you a tax code
- BR: All this income is taxed at the Basic Rate, usually applies to a pension or second job
- D0: Higher Rate of income tax applies
- D1: Additional Rate of income tax applies
- NT: Not taxed income (if you’re self employed, not on PAYE)
Wales
‘C’ denotes a Welsh taxpayer. (Cymru is Wales in Welsh.) And the following bits of code show you which rate of tax applies to your income.
- CBR: Welsh Basic Rate
- CD0: Welsh Higher Rate
- CD1: Welsh Additional Rate
- COT: You have used your full Personal Allowance
Scotland
Scotland have extended their income tax bands to five different levels. The prefix ‘S’ shows they’re a Scottish taxpayer and the other letters show which rate of Scottish income tax applies.
- SBR: Scottish Basic Rate
- SD0: Scottish Intermediate Rate
- SD1: Scottish Higher Rate
- SD2: Scottish Top Rate
- SOT: You’ve used up your Personal Allowance
How do I know what my tax code is?
Your tax code is on your payslips. And, in around February or March, HMRC can send you a ‘P2 Notice of Coding’ letter, which shows your tax code.
It’s down to you to make sure you’re paying the right amount of tax. Even though HMRC administer the system, the legal responsibility lies with each individual taxpayer – you.
That means that you need to notify HMRC of any changes in your employment circ*mstances that alter the amount of income tax you pay. For example, you change jobs or get a promotion. It also means that it’s up to you to check your Notice of Coding letter and tell HMRC if something’s wrong with your tax code. They do make mistakes from time to time!
What’s an emergency tax code?
Taxpayers are usually given an emergency tax code when they start a new job, get the state pension or company benefits, or have been self-employed and are now an employee.
For 2022-23 tax year, these are
- 1257L W1
- 1257L M1
- 1257L X
It’s recommended to do a quick tax code check if you think there’s something wrong. Your tax code can be adjusted by HMRC to make sure you only pay the income tax you need to.
