Tax codes are a combination of specific letters and numbers which are essential to determine the income tax rate to be applied to an individual’s earnings. Through this article, we will learn about the meaning and application of the 1250XL tax code, as well as some details about tax code calculations and incomes that are due for taxation.

What Does Tax Code 1250LX Mean?

The 1250LX tax code on your payslip means that the HMRC is directing your employer to consider your tax deduction as a non-cumulative one. This means that the tax rate applied on your income is only applicable for the period in consideration and the same rate may not be applied for the entire tax year.

The reason for being assigned this unique tax code may be due to the reason that the individual is changing jobs and has been assigned a new tax code in the middle of the tax term. It may also be applicable in cases where self-employed individuals return to salaried jobs and experience a change to their tax code. Or it may be due to the fact that someone is returning to the workplace after a career sabbatical.

The 1250LX tax code is an emergency tax code. This means that it is temporary and can be changed with a change in an individual’s circumstances. Other emergency tax codes include those ending with an M or a W.

Tax codes are a combination of letters and numbers that determine the amount of income tax due on an individual. While the letters indicate your financial position and how it relates to your personal allowance, the numbers tell your employer or pension provider the amount of tax-free income that you are eligible for in that tax year. 

For instance, 1257L (currently the most common 2021-22 tax code in the UK) refers to the new Personal Allowance rate for 2021-22, which is £12,570 and the letter “L” indicates that the individual is entitled to this amount of tax-free income. Any taxes that are to be charged will be above additional amounts beyond this figure.

You can check your income tax calculations online through the HM Revenue and Customs website. If you are employed in more than one job, you will have to conduct multiple calculations to have an estimate for income tax deductions for each source of earnings.

How Are Tax Codes Calculated?

The following steps are followed by the authorities while assigning tax codes:

  • Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
  • Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
  • Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.

If you don’t know your tax code, you can find it through any of the below-listed documents:

  • Payslip
  • P45 form
  • P60
  • PAYE coding notice
  • Pension advice slip
  • HMRC website

How Is The MSE Tax Calculator Used In The UK?

To use the MSE calculator for estimating your annual income tax, you will have to keep the below information available with you so that it may be entered into the online calculator for a correct estimate:

  • gross income (pretax income before any deductions)
  • the year of tax
  • your age
  • your tax code
  • the amount of student loan to be repaid (if any)
  • any other allowances or deductions

Once you enter the required information on the website, you will be asked to click on the “calculate” button which will give you an accurate estimate of the income tax deduction that you can expect for the given tax term.

The UK government has announced that with effect from April 2022, National Insurance will increase by 1.25 percentage points to cater to increased social care costs. Therefore, any calculations made before this time must account for this increased deduction as well when someone is calculating their tax details. However, the updates are not yet available on the  MSE tax calculator website

Why Can’t I Calculate My Income Tax Online?

In case of any of the following conditions, you will not be able to conduct an online calculation for your income tax calculation:

  • the applicant is not a pay as you earn (PAYE) taxpayer
  • the applicant’s sole source of income is either through self-employment or state benefits
  • the applicant contributes to a pension scheme through their employer
  • the applicant is currently repaying a student loan

How Are Tax Identification Numbers Used In The UK?

Tax identification numbers are used to track and monitor the tax accounts of individuals. Although the term TIN Number is not specifically used in the UK in its strictest sense, the HMRC issues two TIN-like numbers to members of the public. The purpose and use of these are described below:

  • The Unique Tax Payer Reference (UTR): This is a ten-digit set of numbers issued by the HMRC to individuals and businesses who qualify for paying tax returns in the UK. You will find this number on the front page of the tax return (form SA100 or CT600). In addition to this, you will find it on a “Notice to complete Tax Return” (form SA316 or CT603) or a Statement of Account. It is also printed next to the headings of “Tax Reference”, “UTR” or “Official Use”; but the appearance and terms that are used will depend on the type of document issued. 
  • The National Insurance Number (NINO): This includes two letters which are followed by six numbers and then only one of the letters between A, B, C and D. Individuals residing in the UK will be issued a NINO once they are 16 years of age. They will be informed by the Department for Work and Pensions (DWP) or the HMRC. If you are an employee, you will find this number on your payslip as well as on a Statement of Account issued by HMRC. It links individuals to their records of national insurance contributions, tax payments, student loans as well as social security benefits.

How Much Income Tax Do I Have To Pay?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return to pay your taxes through a self-assessment. 

How Can I Calculate Bonus Tax?

You can calculate the amount of tax that you pay on your salary bonus in the same way that the tax on your monthly income is calculated. Therefore, salaried individuals pay income tax and national insurance on a bonus as they would on a regular income. The reason for this is that when employees receive a bonus in the UK, it is treated in the same way as their income when it comes to tax calculations. 

This means that if you earn £30,000 a year and are classified as a basic rate taxpayer, you will be paying 20% tax and 12% national insurance on incomes in excess of £12,570. If you get a bonus of £3,000, you will still be paying 20% tax and 12% national insurance on this as well.

Sometimes the bonus that you earn may raise the level of your tax bracket which means that incomes (salary plus bonus) below a certain threshold will be taxed at a separate rate, while those in excess of the minimum limit will be taxed at a higher rate.

Which Incomes Are Tax-Free?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, attendance allowance, child tax credit and housing benefit. 

Conclusion:

The 1250XL tax code is an emergency tax code that may only remain applicable to an individual’s income for a limited period of time. There may be various reasons for this tax code to be applied to earnings but the most common ones include workers returning to a job after a career break being self-employed or during a change of employment. Tax codes are conveniently available on your payslip and can be used for self calculation of tax deductions through various online tools or through the HMRC website.

FAQs: What Does Tax Code 1250LX Mean?

What does a tax code of K mean?

The tax code K is used in situations where an employee’s income tax deductions are higher than their personal allowance. It may be due to the reason that an individual is paying tax for the previous year in addition to the current one. 

Why does my tax code end in T?

If your tax code ends in T, it means that the Inspector of Taxes needs to review your tax calculation, deduction or personal allowance.  

What is the difference between tax codes 1250L and 1257L?

Tax code 1257L has replaced 1250L for the tax term 2022-23; making 1257L the most commonly used tax code in the UK in the current year.

How do I remove my emergency tax code?

If you need to remove your emergency tax code, you should give your P45 to your immediate supervisor at work so that they may apply to the HMRC.

How much is emergency tax 2021?

The emergency tax code for 2021 has been 1257L/M1. It is an indicator on your payslip to consider the pay period on a one-time basis rather than on a cumulative basis.

References:

Understanding your tax code for 2019/20 – Liquid Friday.

1250lx — MoneySavingExpert Forum

Tax code 1250L vs 1250 W1, M1 and X – what do the different letters in tax codes mean? | Personal Finance | Finance | Express.co.uk

Income tax calculator: Find out your take-home pay – MSE

Estimate your Income Tax for the current year – GOV.UK

Tax-free bonus to employees in the UK – What you need to know

Income tax calculator 2022-23, 2021-22 and 2020-21

UK Tax Calculators

HM Revenue & Customs – GOV.UK

Income Tax – GOV.UK

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