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What is the 1257L tax code?
The 1257L tax code is the most common code used by HMRC for employees in the UK for the financial year 2025/26. It tells payroll teams that an employee is entitled to a standard Personal Allowance of £12,570 for the tax year, and that any earnings above this threshold should be taxed according to their income tax band.
This code replaces the 1250L tax code, which applied in previous years when the Personal Allowance was £12,500. HMRC typically assigns 1257L by default to employees with straightforward tax affairs, but it’s still important that payroll teams check each case carefully.
How do tax codes work?
Tax codes aren’t just random strings of numbers and letters. They’re HMRC’s way of telling employers how much tax-free income each worker should receive, and how much tax needs to be deducted from their pay. Understanding them makes it easier to spot mistakes and keep payroll compliant.
The numbers in a tax code show the employee’s Personal Allowance for the tax year, divided by ten. For example, tax code 1257L means that an individual can earn up to £12,570 without having to pay tax. Any amount after that is taxed in line with their income tax band. With older codes like the 1250L tax code, the same principles apply. This was the standard tax code when the Personal Allowance was £12,500.
The letters in tax codes provide extra context. For example, ‘L’ for the standard allowance; ‘M’ or ‘N’ for Marriage Allowance transfers; or ‘T’ where adjustments are needed. Emergency tax codes sometimes end with ‘W1’, ‘M1’ or ‘X’, which means that calculations are made on a pay-period basis (weekly, monthly or varied, respectively) rather than the full tax year.
What factors influence which tax code an employee receives?
While 1257L is currently the standard code, HMRC considers several factors when deciding which code to issue. Payroll teams need to know the factors that affect tax codes so they can explain changes to employees and ensure that their deductions are correct. Let’s go through the main areas that influence whether someone gets the tax code 1257L or something different.
Employment history and starter documents
When a new employee joins, HMRC uses starter information such as a P45 or the starter checklist (previously the P46). These documents help to establish what allowances have already been used and whether the 1257L tax code should apply. Without accurate forms, employees may end up on an emergency code until HMRC has the full details. Employers also need to be mindful of year-end documentation such as the P60, which summarises tax paid and ensures that records are correct going forward.
Multiple sources of income
If an employee has more than one job or also receives a pension, HMRC will split their allowances. One job might get the full allowance with tax code 1257L, while the other is put on a different code, sometimes even a zero-allowance code. That’s why accurate reporting from starter documents like the P46 is critical for payroll.
Workplace benefits and expenses
Employee benefits like company cars, healthcare schemes or other taxable perks affect how much allowance an employee should have. HMRC adjusts tax codes to account for these benefits, so not everyone will qualify for 1257L. Employers should keep employee benefits reported accurately through P11D or payrolling benefits to avoid incorrect codes.
Previous underpayments or tax owed to HMRC
If an employee has underpaid tax in a previous year, HMRC can reduce their allowance in the current year. This means that they might have a different tax code from 1257L. Payroll teams should check the coding notices carefully to see whether these adjustments are temporary or ongoing.
H3: Emergency or temporary tax codes issued by HMRC
If HMRC doesn’t have enough information about an employee, it may issue an emergency code such as 1257L W1, M1, or X. These work differently from the standard tax code 1257L because they calculate tax as if each pay period is the first in the year. Payroll needs to update this information as soon as HMRC sends the correct code, and reimburse or adjust the employee’s future pay to make sure they’ve paid the right amount.
Why has 1257L replaced tax code 1250L?
Most employers will remember using the 1250L tax code not long ago. This was the standard code when the Personal Allowance was £12,500, but it was replaced when the allowance increased to £12,570 in 2025.
H3: Why do tax codes need to change?
Tax codes change for several reasons:
- Annual adjustments to the Personal Allowance by the government
- Policy changes, such as Marriage Allowance transfers or Scottish tax rates
- Corrections for previous underpayments or overpayments
- Introduction of new tax thresholds or banding
For payroll teams, the key point is that these updates are routine and need to be built into payroll systems without delay. This helps teams to avoid errors, ensure compliance, and maintain accurate employee pay.
Why is it important to make sure employee tax codes are correct?
It might sound obvious, but having the wrong tax code can cause headaches for employees and employers alike. Let’s explore why getting them right is so important.
Preventing employees under- or overpaying tax
Incorrect tax codes are one of the biggest causes of costly payroll errors for businesses. If employees are on the wrong code, they could pay too much or too little tax. This leads to frustration and possible claims later in the year, which could put them under additional financial stress.
Reducing payroll queries
A wrong tax code can cause a lot of questions and additional admin, which can take payroll teams away from essential work. Improving your payroll process can help to minimise risk of incorrect tax codes – as well as the associated stress and confusion.
Protecting employee trust
When payslips are accurate, employees trust the system. However, errors damage confidence in both payroll and the employer, leading to frustration and disengagement. Managing tax codes correctly supports a positive employee experience that helps staff to feel valued and secure in their pay.
Staying compliant with HMRC regulations
Payroll isn’t just about keeping staff happy; it’s also about compliance. HMRC expects tax codes to be applied correctly, and mistakes can lead to penalties. Good systems and processes support ongoing payroll compliance while saving time and reducing errors.
Checklist for payroll teams switching to tax code 1257L
When HMRC announces a new standard tax code, payroll teams need to act fast. Having a checklist ensures that nothing is missed, from updating software to keeping employees informed. Here’s a practical breakdown of what to do when moving from tax code 1250L to the tax code 1257L, or any future updates.
Check HMRC code updates
A big part of HR and payroll responsibilities is keeping up to date with changes in payroll legislation. Make sure to promptly review coding notices sent by HMRC to learn which employees are moving to new codes and when the changes apply.
Update payroll software
Payroll software should handle tax code changes automatically if it’s configured correctly. However, make sure to stay on top of updates and apply the right settings to avoid mistakes. If you’re still managing things manually and finding this process tough, it might be a sign that you need payroll software.
Replace old tax codes
Don’t assume that legacy codes like 1250L will vanish on their own. Check employee records and make sure that every case has been switched to the correct code.
Notify employees
Communication matters. Let employees know when their tax code changes so they aren’t surprised when their take-home pay shifts. Payslips are the best way to highlight changes clearly, but sending a brief email can help to ensure clarity.
Review payroll processes
After changes are implemented, run a review to check accuracy. Make sure to review codes as part of your regular HR audit process and update your payroll system promptly to reflect any HMRC changes.
Frequently asked questions
What does tax code 1257L mean?
This means that an employee has a tax-free Personal Allowance of £12,570 for the tax year. This is the amount that they can earn before paying income tax. The ‘L’ shows that they qualify for the standard allowance.
Is 1257L a common tax code?
Yes. 1257L is the most common code used by HMRC for the tax year 2025/26 and applies to the majority of employees with straightforward tax affairs.
Is 1257L an emergency tax code?
Not usually. However, if it ends with W1, M1, or X, it means that HMRC has applied it on an emergency basis until full details about an employee’s tax status are available.
How is tax code 1250L different from 1250L?
The 1257L tax code replaced the 1250L tax code when the Personal Allowance rose from £12,500 to £12,570. Otherwise, it works in the same way.
Why might an employee still be on tax code 1250L instead of 1257L?
An employee might still be on this code if HMRC hasn’t updated their records, or if the employee’s personal circumstances mean that their allowance hasn’t been fully applied.
What should payroll do if a tax code looks incorrect?
Payroll teams should never change a tax code themselves. If a code looks wrong, advise the employee to contact HMRC directly, and apply any updated code as soon as it’s issued.
Keep on top of payroll and changing tax codes with PeopleHR
The 1257L tax code is the standard for most employees, but understanding how it works and why it replaced 1250L helps employers and payroll teams to avoid mistakes. From knowing how codes are calculated to recognising the risks of getting them wrong, staying on top of tax codes is a vital part of payroll.
PeopleHR’s payroll software is designed to keep you compliant by automatically applying HMRC updates, spotting inconsistencies, and reducing the admin that comes with tax code changes. With accurate calculations and clear reporting, you’ll save time and give employees confidence in their payslips.
To see our payroll software in action, watch our demo video, or contact us for more information about any of our HR solutions.
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