With payday finally approaching for a great deal of people, many will likely be taking a look at their payslip. On it, they may notice their tax code. What does the tax code 1250L mean?
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HM Revenue and Customs (HMRC) tells an employer or pension provider which tax code they should use in order to collect the right tax.
This will normally start with a number and end with a letter.
The code 1250L is currently used for most people who have one job or pension, Gov.uk explains.
It’s possible for taxpayers to check what their tax code is online, as well as see whether it has changed.
In May last year, the topic of checking tax codes made headlines, after a number of workers in Wales were given Scottish tax codes – thus paying the wrong amount of Income Tax due to Scottish rates being applied.
HMRC did not say how many people were affected by the mix-up, according to the BBC at the time.
HMRC told the broadcaster that the error was down to some employers entering an S code for Scotland, and that this meant some people paid too much tax and others not enough.
Speaking to Express.co.uk, Deborah Vickers, channel director and personal finance expert at moneyguru.com, said: “You may want to check your tax code, especially if your circumstances have changed.”
So, how can a person check their tax code?
“Firstly, check your latest Coding Notice. This is a letter sent by HMRC that gives you your tax code and the reason why HMRC gave you that tax code,” Ms Vickers said.
“You should double-check that the tax code stated on your Coding Notice and that all of the information on your notice is accurate.
“It’s also worth checking that your employer (or pension provider) is using the correct tax code for you.
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“If you do not understand your tax code or think it could be wrong, you should query it with HMRC.”
The government website explains how the tax code is worked out, beginning with the numbers.
“The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year,” it states.
In order to calculate the number, HMRC first works out the tax-free Personal Allowance.
Then, income that tax has not been paid on and the value of any benefits from a job are added up.
This number is then taken away from the Personal Allowance, and what is left is the tax-free income that’s allowed in the tax year.
Finally, the last digit of this figure is removed, creating the number in the tax code.
Menawhile, the tax code letters refer to the situation and how it affects the Personal Allowance.
So, L means that the person is entitled to the standard tax-free Personal Allowance, and for a person with the 1250L tax code, this means £12,500.
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