Checking a tax code is correct can be of huge importance, as having the wrong code could mean a person pays the wrong amount of tax to HMRC. This is because the code is used by a person’s employer or pension provider to work out how much Income Tax needs to be taken from their pay or pension.
He previously told Express.co.uk: “Tax codes can be wrong for many reasons.
“It’s normally caused by HMRC not receiving enough (or incorrect information) about your earnings or work situation.
“For example, if a portion of your income goes towards work-related expenses like purchasing equipment, working from home and cleaning/maintaining your uniform, your code might not accommodate it.
“Your tax code can also be wrong if your employment circumstances change.
“Moving jobs with a different salary or a lost p45 can mean you’re automatically put on an emergency tax code which can mean you will over-pay in tax contributions.
“Sometimes, even with all the correct information, your employer or HMRC can simply get it wrong.”
It’s possible to check a person’s Income Tax situation online via GOV.UK’s “Check your Income Tax for the current year” service.
It covers the current tax year, from April 6, 2021 to April 5, 2022.
Users can check their tax code and Personal Allowance, as well as see if their tax code has changed, amongst other actions.
1250L was one of the most common tax codes in the previous tax year, however now, it is 1257L which is currently used for most people who have one job or pension.
It comes following a 0.5 percent rise to the Personal Allowance – increasing from £12,500 to £12,570.
The Personal Allowance is the amount of taxable income a person can earn without needing to pay tax on it, with tax rates kicking in beyond this threshold.
How are tax codes worked out?
A tax code normally starts with a number and ends with a letter.
The numbers tell the employer or pension provider how much tax-free income can be received in that tax year.
To determine the numbers, first HMRC works out the tax-free Personal Allowance.
Income that the person hasn’t paid tax on, and the value of any benefits from a job, are then added up.
Income that a person has not paid tax on is then taken away from the Personal Allowance, and what is left is the tax-free income allowed in a tax year.
To work out the numbers, the last digit in the aforementioned tax-free income amount is then removed.
As such, those with the tax code 1257L will have a tax-free income of £12,570 allowed in the tax year.
The letters in a tax code, meanwhile, refer to the person’s situation and how it affects the Personal Allowance.
The letter L refers to the person being entitled to the standard tax-free Personal Allowance.