Why Is My Tax Code 1238L?

If you are wondering why you’ve been assigned the 1238L tax code, you will find the answer to your question in the following blog post. In addition to this, we will also explain how tax codes are assigned and how you can check if your tax code is correct.

Why Is My Tax Code 1238L?

You may have been assigned the 1238L tax code, it is possible that you have earnings from savings and investments that have not been declared for tax deduction purposes. For this reason, HMRC can change your tax code to 1238L and reduce your Personal Allowance from £12,570 to £12,380.

Another reason could be that your employer has given you a tax-free benefit such as a company car. In this case, the HMRC may assign a lower tax code such as 1238L to reduce your Personal Allowance and increase the amount of your taxable income.

Company benefits that can reduce your Personal Allowance include the following:

  • Company vehicle
  • Living accommodation 
  • Low-interest or interest-free loans 
  • Medical insurance

Your employer will simply apply a monetary value to the company benefits given to you. This amount will be deducted from your Personal Allowance, which reduces the non-taxable amount of your income. 

However, with the L extension at the end, the tax rate that applies under a 1238L tax code will remain at the basic rate of 20%.

Tax codes are assigned by HMRC on the basis of one’s income and circumstances; while the tax-free amount of Personal Allowance remains fixed for a tax term. If a taxpayer is assigned a tax code lower than the standard tax code of 1257L, it means that the HMRC is instructing their employer to reduce their tax-free Personal Allowance so that more of their income can be taxed.

How Is Tax Calculated?

Your tax liability is calculated on the basis of the tax code and tax rate assigned to you. Tax codes are assigned by HMRC and sent to the employers of taxpaying employees registered under the PAYE system. They indicate your Personal Allowance as well as whether the nature of the tax code is temporary or permanent.

When calculating a tax code, the HMRC will first calculate your tax allowances. This is usually your Personal Allowance of £12,570 but there can be other allowances and job expenses as well.

Then your deductions are calculated. In addition to your salary, this includes incomes for which tax has not been paid and such as any part-time work or state benefits.

Then the sum of your deductions is subtracted from the tax allowances. The result is your pre-tax income. If this amount equals your Personal Allowance, your income remains tax-free.

Tax rates are applied on the following basis:

  • incomes up to £12,570 are taxed at 0%
  • incomes between £12,571 and £50,270 are taxed at 20% 
  • incomes between £50,271 and £150,000 are taxed at 40%
  • incomes above £150,001 are taxed at 45%

How Can I Check If My Tax Code Is Correct?

To confirm if your tax code is correct, you can check the following documents; your tax code should be the same on all of them:

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

You can also check your tax code using HMRC’s online tax code checker tool.


The above discussion explains the possible reasons why the 1238L tax code is assigned by HMRC. If these situations don’t apply to you, you should contact HMRC.


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