Employees' tax code

Tax code 1257L

The most common tax code for tax year 2021 to 2022 is 1257L. It's used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

1257L is an emergency tax code only if followed by 'W1', 'M1' or 'X'. Emergency codes can be used if a new employee doesn't have a P45.

What the numbers mean

The numbers in an employee's tax code show how much tax-free income they get in that tax year.

You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed.

For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £27,000 per year, their taxable income is £14,430.

The process is different if the employee has the letter 'K' in their tax code.

What the letters mean

Letters in an employee's tax code refer to their situation and how it affects their Personal Allowance.

For example:

L - tax is deducted at basic, higher and additional rates depending on the amount of taxable income. This code is usually used for an employee entitled to the standard tax-free Personal Allowance.

BR - tax is deducted from all income at the basic rate. This code is usually used for a second job or pension.

D1 - tax is deducted from all income at the additional rate. This code is usually used for a second job or pension.

If your employee's tax code has 'W1' or 'M1' at the end

W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee's tax code, for example '577L W1' or '577L M1'. Calculate your employee's tax only on what they are paid in the current pay period, not the whole year.

Tax codes with the letter 'K'

The letter K is used in an employee's tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their Personal Allowance.

Multiply the number in their tax code by 10 to show how much should be added to their taxable income before deductions are calculated.

Example: An employee with tax code K475 and a salary of £27,000 has taxable income of £31,750 (£27,000 plus £4,750).

The tax deduction for each pay period can't be more than half an employee's pre-tax pay or pension.