Last Updated on: 21st November 2024, 11:30 am
If you’ve noticed a change in your tax code from 1250L to 1185L, you’re likely wondering how this affects your income and why it happened. In the UK, tax codes are essential for ensuring that the correct amount of tax is deducted from your earnings.
A change in your tax code often reflects adjustments in your financial situation or decisions made by HM Revenue and Customs (HMRC) to account for prior discrepancies.
While this may seem concerning, understanding the reasons behind the change can help you take the right steps.
This guide will explain what the tax codes 1250L and 1185L signify, why your tax code may have changed, the impact on your income, and what actions to take if you think the adjustment is incorrect.
What is Tax Code 1250L?
The 1250L tax code is one of the most commonly assigned codes for employees in the UK. It represents a standard Personal Allowance, which is the amount you can earn annually without paying income tax. For the 2024-2025 tax year, this allowance is set at £12,570.
The ‘L’ in the code indicates that you are eligible for the standard Personal Allowance, making this tax code applicable to most UK taxpayers with straightforward financial circumstances.
Employers use this code to calculate how much income tax to deduct from your salary. For example, if you earn £20,000 a year, the first £12,570 will be tax-free under the 1250L code, with tax applied only to the remaining £7,430.
This tax code assumes no deductions or additions to your allowance. However, personal factors such as receiving additional taxable benefits or working multiple jobs may necessitate a different code.
Understanding this baseline tax code is essential for identifying why adjustments like the shift to 1185L occur.
What is Tax Code 1185L?
Tax code 1185L represents a lower Personal Allowance than the standard £12,570. Under this code, your tax-free allowance is £11,850, meaning a greater portion of your income is subject to taxation.
A reduction in your Personal Allowance often indicates adjustments due to changes in your financial or employment situation.
For instance, this tax code may apply if you have taxable benefits from your employer, such as a company car or private health insurance.
Similarly, if you owe unpaid tax from previous years, HMRC might reduce your Personal Allowance to recover the outstanding amount.
Employers use the 1185L code to calculate how much tax to deduct from your salary. While the reduction may seem minor, its impact on your take-home pay can add up over time.
For example, a £720 reduction in your tax-free allowance could increase your annual tax liability by around £144 if you are in the 20% tax bracket.
Being assigned the 1185L tax code isn’t necessarily a mistake. However, understanding why your allowance has been adjusted is crucial to ensuring your tax obligations are accurate and fair.
Why Has My Tax Code Changed from 1250L to 1185L?
A change in your tax code from 1250L to 1185L signifies a reassessment of your Personal Allowance. This often happens when HMRC updates your tax code based on new information about your financial circumstances.
Common factors include:
1. Additional Income: Earning from a second job or receiving a pension could alter your overall tax liability.
2. State Pension Adjustments: If your state pension amount changes, HMRC will update your tax code to reflect this.
3. Employer Benefits: Any changes in employer-provided benefits such as health insurance or a company car.
4. Claiming Benefits: Starting to claim benefits like Marriage Allowance or taxable state benefits affects your tax-free personal allowance.
5. Switching Jobs: If you switch jobs, HMRC may issue a temporary emergency tax code until your new employment details are confirmed.
It’s essential to verify these changes to ensure they accurately reflect your situation. Contact HMRC if you believe there’s been an error or if your circumstances have changed again.
By keeping your details up-to-date, you can avoid unnecessary deductions and ensure compliance with UK tax laws.
How Does This Change Affect My Take-Home Pay?
A reduction in your tax code from 1250L to 1185L lowers the amount of your income that is tax-free. This directly affects your take-home pay, as a greater portion of your earnings will now be subject to taxation.
For example, under the 1250L tax code, you could earn up to £12,570 tax-free. With the 1185L tax code, this threshold drops to £11,850.
The £720 difference is taxable, and depending on your tax rate, this could mean paying an additional £144 in tax annually if you’re in the 20% tax bracket.
While the immediate financial impact may seem small, cumulative effects can add up over time. The change could result from new taxable benefits, adjustments for underpaid tax, or additional income sources.
Reviewing your payslip and understanding how this adjustment affects your overall earnings is important.
If you’re uncertain about the change, check your HMRC Coding Notice or use their online tools to calculate the difference. By staying informed, you can budget effectively and promptly address any discrepancies in your tax code.
What Should I Do If I Believe My Tax Code is Incorrect?
If you think your tax code has been changed in error, take these steps:
1. Review Your Payslip: Check your latest payslip for your current tax code. Compare it with the HMRC Coding Notice or online tax code information.
2. Check Your Details: Ensure your personal and financial details are accurate, including benefits, additional income, and underpaid tax.
3. Contact HMRC: Reach out to HMRC via their online portal, phone, or mail. Provide them with the necessary information to explain why you think the code is incorrect.
4. Request Adjustments: If your tax code is indeed wrong, HMRC will issue a new Coding Notice to you and your employer. The change will reflect in your next paycheck.
Taking these actions promptly will help you avoid overpaying tax and ensure your code aligns with your financial situation.
How Can I Prevent Future Unexpected Tax Code Changes?
Avoiding unexpected tax code changes requires proactive management of your tax records. Here are some tips:
- Keep HMRC Updated: Notify HMRC of changes to your employment, income, or benefits immediately.
- Review Payslips Regularly: Regularly check your tax code on your payslips to ensure its accuracy.
- Use HMRC Tools: Utilize HMRC’s Personal Tax Account to track your tax code and report changes.
- Seek Advice: If your financial situation is complex, consult a tax advisor to help manage your tax obligations effectively.
You can minimize the chances of unexpected tax code adjustments by staying informed and communicating with HMRC.
Conclusion
A change in your tax code from 1250L to 1185L can initially seem daunting, but it often reflects necessary adjustments to your financial circumstances.
Understanding the reasons behind the change, its impact on your income, and the steps to address inaccuracies will empower you to take control of your taxes.
By staying proactive, you can ensure your tax code remains accurate and avoid unnecessary financial stress.
FAQs About Why Has My Tax Code Changed From 1250L to 1185L?
How do I find out my tax code?
You can check your tax code on your payslip, HMRC Coding Notice, or the Personal Tax Account on the HMRC website.
Can a tax code change mid-year?
Yes, HMRC can adjust your tax code anytime to reflect changes in your circumstances.
What if I overpay tax due to an incorrect tax code?
If you overpay tax, HMRC will issue a refund, typically after the end of the tax year.
Can I appeal my tax code?
Yes, if you believe it’s incorrect, contact HMRC with evidence to request a review or correction.
Does changing jobs affect my tax code?
Yes, starting a new job can result in a tax code change, especially if previous employment details are incomplete.
What happens if I don’t report changes to HMRC?
Failing to report changes could lead to an incorrect tax code, potentially resulting in underpayment or overpayment of tax.
How often should I check my tax code?
It’s advisable to review your tax code at least annually or after any significant financial changes.
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