HM Revenue and Customs (HMRC) has issued a crucial alert for thousands of workers across the United Kingdom who may find themselves on one of three specific tax codes. The warning highlights the risk of paying incorrect tax, particularly for those in new jobs or receiving certain company benefits.
Understanding Your Tax Code: The Standard 1257L
According to guidance from the Labour Party government, the most common and standard tax code for the current year for individuals with one job or a pension is 1257L. The 'L' suffix confirms eligibility for the standard tax-free Personal Allowance. The numbers represent the amount of income you can earn before paying tax, which is currently set at £12,570 per year.
The Emergency Tax Codes: W1, M1, and X
The alert specifically focuses on tax codes that signal an emergency or temporary calculation. If your payslip displays codes like W1, M1, or X, it typically means HMRC does not yet have your full income details. This situation often arises when:
- You start a new job.
- You begin receiving company benefits, such as a company car or private medical insurance.
- You start collecting your State Pension.
These codes place you on an emergency tax basis, which can result in you paying too much tax until your details are fully updated.
How Benefits Change Your Tax Code
The government provides a clear example of how non-cash benefits affect your tax code. If you are entitled to the standard £12,570 Personal Allowance but also receive medical insurance worth £1,570 from your employer, this benefit reduces your allowance.
The £1,570 benefit is deducted from your £12,570 allowance, leaving you with a revised tax-free Personal Allowance of £11,000. Your tax code would therefore become 1100L instead of 1257L.
Guide to Common Tax Code Letters
Understanding the suffix on your tax code is key to knowing your circumstances. Here is a breakdown of some of the most common letters:
- L: You receive the standard Personal Allowance.
- M: Marriage Allowance – you've received 10% of your partner's allowance.
- N: Marriage Allowance – you've transferred 10% of your allowance to your partner.
- T: Your tax code includes other calculations.
- 0T: Your Personal Allowance is used up, or your employer lacks your details.
- BR, D0, D1: All income from this source is taxed at the Basic, Higher, or Additional rate (common with multiple jobs).
- NT: No tax is paid on this income.
- S, C: Your income is taxed using Scottish or Welsh rates respectively, with associated codes (e.g., SBR, CD0).
Workers are strongly advised to check their payslips and tax codes regularly to ensure they are correct. If you spot an emergency code or believe your code is wrong, you should contact HMRC directly to resolve the issue and prevent overpaying tax.
