Tax code 1250L vs 1250 W1, M1 and X – what do the different letters in tax codes mean? | Personal Finance | Finance

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An individual’s employer or pension provider uses one’s tax code to work out how much Income Tax should be taken from their pay or pension. HMRC tells them which code to use for this. Should a person be interested, it is possible for them to check what their tax code is via the government’s online tool. Currently, the most common tax code is 1250L.

This means that the taxpayer is entitled to the full £12,500 of the standard Personal Allowance – meaning they do not pay tax on the first £12,500 of their taxable income in this tax year.

However, some people may notice they have a different tax code on their pay slip.

Letters and numbers make up one’s tax code.

To determine the numbers, HMRC works out the taxpayer’s tax-free Personal Allowance, and then deducts the total amount of income on which one has not paid tax on, and the value of any benefits from one’s job.

This is the tax-free income which is allowed in the tax year, and the last digit of this figure is removed in order to create the numbers in one’s tax code.

There are a number of letters which mean different things when it comes to a tax code.

The gov.uk website explains that if a person is on an emergency tax code, their payslip will show:

This means that one will pay tax on all income above the basic Personal Allowance.

There are a number of reasons why one may be put on an emergency tax code.

This includes if they’ve started a new job, begun working for an employer after being self-employed, or have started getting company benefits or the state pension.



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