UK Tax Code 1257L Explained: What It Means for Your Payslip

UK Tax Code 1257L Explained: What It Means for Your Payslip

The tax code 1257L is the most common for the tax year 2021 to 2022. It applies to most people with one job and no untaxed income, unpaid tax, or taxable benefits, such as a company car. This code is straightforward unless followed by ‘W1’, ‘M1’, or ‘X’, which indicate an emergency tax code.

What the Numbers Mean

The numbers in a tax code indicate how much tax-free income an employee is entitled to for the year. Multiply the number by 10 to determine the total amount of tax-free income.

• Example

  : Tax code 

  1257L 

  allows for £12,570 of tax-free income. If the annual income is £27,000, the taxable amount is £14,430.

What the Letters Mean

Letters in a tax code provide additional context about the individual’s tax situation:

• L

  : Standard tax-free Personal Allowance, taxed at basic, higher, and additional rates.

• BR

  : All income taxed at the basic rate, usually for a second job or pension.

• D1

  : All income taxed at the additional rate, also for a second job or pension.

Emergency Tax Codes

Codes ending in ‘W1’ (week 1) or ‘M1’ (month 1) are emergency tax codes:

• W1/M1

  : Tax is calculation is based only on the current pay period, not the whole year.

Tax Codes with ‘K’

The letter ‘K’ in a tax code means deductions for company benefits, state pension, or owed tax exceed the Personal Allowance:

• Example

  : Tax code K475 states £4,750 should be additional to taxable income. For a salary of £27,000, the taxable income becomes £31,750.

Key Points

• Tax codes determine how much of an employee’s income is tax-free.
• Emergency codes apply to new employees without a P45.
• Deductions and allowances depend on individual circumstances, reflected in the tax code letters and numbers.

Understanding these components ensures accurate tax calculations and compliance with UK tax laws.