What is a Tax Code?

If you’re employed, your tax code enables your employer or pension provider to work out how much Income Tax to take from your pay or pension. The employer enters the employee’s tax code into their payroll software to find out how much tax to deduct from their pay throughout the year.

You can check your tax code for the current tax year online via government website GOV.UK (you’ll need to sign in or create an online account). Alternatively, you’ll find it via the HMRC app, your payslip or a Tax Code Notice letter from HMRC if you’ve received one.

Tax codes consist of numbers and letters and 1257L is the tax code for most people with one job or pension. An employee with the tax code 1257L can earn £12,570 within the tax year before being taxed (£12,570 is the basic Personal Allowance). If HMRC changes your tax code, it will contact you to explain how it decided your new tax code. Tax code changes happen when someone’s tax-free income increases or decreases (eg if they no longer get a taxable benefit such as a company car).

HMRC works out your tax code number based on your tax-free Personal Allowance and income you’ve not paid tax on (such as untaxed interest or part-time earnings). They also consider the value of any company benefits (eg a company car).