Your tax code plays a key role in determining how much income tax you pay. The letters and numbers in your code are used by employers and pension providers to calculate the right deductions from your earnings.
For the 2025/26 tax year, the standard personal allowance, the amount you can earn before paying income tax, remains at £12,570. For most people, this is represented by the code 1257L. This is the most common code for those who:
Have one job or pension
Receive no untaxed income
Have no taxable benefits (like a company car or medical insurance)
Do not owe unpaid tax from previous years
But tax codes are not static. HMRC regularly updates them to reflect changes in your circumstances, ensuring that the correct amount of tax is collected across the year.
Common Reasons Why Your Tax Code Might Change
Starting a new job: When you begin working for a new employer, HMRC may not yet have a complete picture of your income. A new or temporary code could be issued until your full details are confirmed.
Receiving taxable state benefits: Some state benefits, such as Carer’s Allowance or Jobseeker’s Allowance, are taxable. If you start claiming them, your code will be adjusted to reflect the additional income.
Taking on an extra job or pension: If you earn from more than one source (e.g. a second job, freelance income, or a pension), HMRC will update your code to ensure tax is spread correctly across your earnings.
Changes to your State Pension: State Pension is paid without tax deducted, so HMRC adjusts your code to collect tax through other income. If the amount of your weekly pension changes, so may your code.
Changes to job-related benefits: Perks such as company cars, fuel allowances, or private medical cover are taxable. If you start or stop receiving these, your employer informs HMRC, and your tax code is updated.
Marriage Allowance transfers: If you or your spouse/civil partner claim Marriage Allowance, part of the Personal Allowance is transferred. HMRC updates both partners’ tax codes to reflect the new entitlement.
Claiming tax-deductible expenses: Relief for work-related expenses (like uniforms, professional fees, or mileage) can reduce the tax you owe. HMRC may change your code so you benefit from this relief during the year, rather than waiting until you file a return.
Why It Matters
Having the wrong tax code can mean you pay too much or too little tax. Overpayment is usually refunded, but underpayment can result in an unexpected tax bill later on. That’s why it’s important to regularly check the code on your payslip or pension statement and query anything that doesn’t look right.
How We Can Help
Understanding tax codes can be confusing, especially if you have multiple income sources or benefits. At Pandey & Co, we help individuals and businesses ensure their codes are accurate and that they’re not paying more tax than necessary.
If you’ve recently had a code change, or you’re unsure whether yours is correct, get in touch with our team today.
We’ll review your situation and liaise with HMRC on your behalf if needed.
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