Tax code 1250L will be the most common tax code for the tax year 2020/21. It is unchanged from the tax year 2019/20.
Most taxpayers will receive an updated tax coding notice from HMRC in February or March each year.
Your tax code is important as it is used to calculate how much tax you will pay.
The personal allowance is the amount a UK taxpayer can earn tax free. For the tax year 2020/21 the personal allowance increases to £12,500.
HMRC convert the personal allowance of £12,500 and turn it into tax code 1250L. They drop the last digit which gives 1250. The letter L is then added if you are entitled to the standard personal allowance. This therefore results in tax code 1250L.
Therefore if you have a tax code 1250L it means that you can earn £12,500 before you pay tax.
With a tax code 1250L your tax free total is £12,500 per annum. This is spread over the course of the year so that your weekly allowance would be £240. If paid monthly it would be £1,042.
Earnings in excess of this are taxed at 20%. This is for earnings between £12,501 and £50,000.
After this it increases to 40% for earnings between £50,001 and £150,000.
Earnings over £150,001 are then taxed at the highest rate which is 45%.
n.b Scotland has introduced its own tax rates which are slightly different to those stated above.
Tax code 1250L will be correct for the majority of employees. Typically those with just one employment with no benefits or tax deductible allowances will have a correct tax code. However the tax coding system can quickly go wrong. Typical examples include:
• A change of jobs, having more than 1 job, starting, leaving or retiring in the year
• Having more than 1 source of income such as a job and a pension
• Changes to tax deductible allowances e.g paying professional subscriptions
• Changes to taxable benefits e.g being provided with a company van for private use
If you believe your tax code may be incorrect you should contact HMRC on 0300 200 3300. Contacting HMRC immediately will minimise the tax error so don’t delay.
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