The most common tax code in the UK is 1257l, so seeing a different tax code can be alarming for both employees and employers. If you’re a business owner reviewing the payslips of your employees and you come across a 1263l tax code, you might wonder if you made a mistake when passing over their […]
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The most common tax code in the UK is 1257l, so seeing a different tax code can be alarming for both employees and employers. If you’re a business owner reviewing the payslips of your employees and you come across a 1263l tax code, you might wonder if you made a mistake when passing over their details to HMRC. But don’t worry, the 1263l tax code is unlikely to be a mistake at all.
1263l is a tax code that expresses a higher than usual tax free personal allowance. That means for people on this tax code, they won’t need to pay income tax on any of their earnings up to £12,630 per year. But why is that?
Below we’ll compare 1263l tax codes with other more common tax codes to get a better idea of the main differences between them, and then we’ll explore why employees might be placed on this tax code to begin with.
If you’re a business owner and have an employee who is querying their tax code, our guide below ought to be able to straighten things up and help your employee understand their personal tax account better.
Most tax codes in the UK are a shortened version of your tax free personal allowance to highlight how much tax free income you can earn in a year without paying tax on it.
In order to work out your personal allowance threshold from the tax code, you simply need to times the numbers by 10. By doing that, you can see how much untaxed income you’re entitled to earn in a year. Anything over that amount will lead to you having to pay tax, but only on the amount above the tax free amount you’re entitled to.
So, for a 1263l tax code, you could work out your personal allowance like this:
In sum, a 1263l tax code simply means you can earn £12,630 in a tax year without having to pay any tax.
Since 1263l differs from the norm, it’s common for people to worry that it’s an emergency tax code.
The 1263l tax code is NOT an emergency tax code. It simply means that an employee is entitled to a higher tax free personal allowance compared to most UK workers. Why that might be, we’ll explore in greater depth later. For now, let’s turn our attention to how this tax code differs from the most common in the UK.
Using the x10 rule from earlier, you might already be able to tell the main difference between 1263l and 1257l tax codes. But to illustrate it clearer:
| 1257l: | 1257 x 10 = 12570 | £12,570 personal allowance | No tax paid on first £12,570 of annual income |
| 1263l: | 1263 x 10 = £12630 | £12,630 personal allowance | No tax paid on first £12,630 of annual income |
As you can see, the difference is minor, but it can have some implications on your final tax bill at the end of a tax year.
In the example above £12,570 per year is the standard personal allowance for most UK employees or retirees. Their employer or pension provider will be most used to seeing the 1257l tax code which represents their tax free allowance.
Why then, does this revised tax code allow for an additional £60 per year to be earned before tax is paid? We’ll cover that in the section below.
The most common reason for a tax code that differs from the 1257l norm is all to do with allowable expenses that HMRC deem necessary for an employee to complete their work to the necessary standard.
Since HMRC are in the business of fairness, it isn’t deemed fair that these work related expenses should come out of the employee’s pocket.
Specifically in the case of a 1263l tax code, the £60 difference between a standard allowance (£12,570) and an employee’s allowance of £12,630 is usually due to a base rate allowable expense from HMRC for having to wash and maintain a work uniform.
If one of your employees is already on a 1263l tax code for the expense of having to wash and maintain a uniform, then it’s likely that they’ve applied using a P87 form with HMRC, which specifically requests HMRC to review their tax code and increase their personal allowance to reflect their work related expenses of having to wash their uniform regularly.
Once the tax code has been changed for this reason, HMRC won’t revert it back unless specifically told to, so the employee you’ve noticed with this tax code might simply have applied at a previous job and HMRC still think they need to wash their uniform and have that as an expense.
If your business doesn’t have a uniform, then speak with your employee and advise them to change their tax code back to 1257l with HMRC by letting them know that the uniform expense is no longer required. This will just prevent them from the often irritating bill of unpaid tax that they could get through the post in the future.
If your business does have a uniform, then it may be worth telling all of your employees about the P87 form with HMRC, so they can all enjoy a slightly increased personal allowance and higher pre tax wages.
Having a different tax code to the norm can certainly have an impact on different tax brackets that you may or may not fall into.
The different tax brackets are broken down for you below, based on a typical 1257l tax code:
If an individual had a salary of £150,000 per year, they would pay tax based on the following:
| £0-£12,570: | 0% |
| £12,571-£37,700: | 20% |
| £37,701-£125,140: | 40% |
| £125,140-£150,000: | 45% |
Now, if the same individual earning £150,000 per year had a 1263l tax code, then those tax brackets would look ever so slightly different, and they would pay tax based on the following:
| £0-£12,630: | 0% |
| £12,631-£37,700: | 20% |
| £37,701-£125,140: | 40% |
| £125,140-£150,000: | 45% |
It won’t make a huge difference to the amount of tax they pay over a year, but there would be a slight difference in their overall tax bill.
Paying tax and national insurance are two different things. Your personal allowance actually has very little baring on the national insurance contributions you’ll make, and it’s worked out differently from the tax system in the UK anyway.
As such, a 1263l tax code will have no baring on the national insurance payments you’ll make throughout the year.
If your employee has previously been on the more common 1257l tax code, and they have received a tax code notice of change or they’ve simply noticed a tax code change on their payslip for no reason, then it might be a mistake.
If your employee hasn’t applied for an increase in their personal allowance due to the cost of maintaining their uniform via a P87 form through HMRC, then they should contact HMRC at their earliest convenience to discuss why their tax code has changed and to revert it back if there has been an error.
We’ve already said that 1263l isn’t an emergency tax code, and nor is it particularly a cause for concern.
If your employee has noticed a change in their tax code and is worried that it might be wrong, then they should always reach out to HMRC to discuss the change and ensure that it wasn’t a change made in error.
Personal allowances are set by HMRC for a reason, but if it is a mistake, then it’s usually best to fix it quickly to avoid tax repercussions.
1263l is, in a way, a form of tax relief. It allows an employee to factor in the cost of cleaning and maintaining their uniform – and they’re compensated for that.
As a result, they don’t pay as much tax as somebody on a 1257l tax code – though the difference will be small.
If an employee is placed on a 1263l tax code wrongly, or they were right to be on the tax code previously at another job, but they no longer require a uniform at their current employment, then they will be underpaying tax.
If HMRC rectify the error or find out that the tax code the employee is on is now wrong because of their change of job (the employee should have told them that the 1263l tax code is no longer relevant to their new employment), then HMRC might send a tax bill out to the employee in order to recover that underpaid tax.
If your employee has noticed that their 1263l tax code isn’t correct, then they’ll need to contact HMRC and let them know.
Here are the steps they’ll need to take:
The first thing your employee will need to do is collect all the information they’ll need to talk to HMRC and discuss their tax code and query whether or not it is correct. HMRC will likely ask for the following, and you can help your employee with some of it:
This information will help HMRC determine if they have the right tax code for or not, and if not, it’ll help them find the right tax code for the employee.
Your employee will need to contact HMRC themselves to discuss their personal tax code and how their personal allowance is affected as a result of it. You can’t do it for them.
But one way for them to query their tax code with HMRC is to give them a call on 0300 200 3300 for calls regarding income tax and problems with tax codes.
It might be quicker and more convenient for your employee to contact HMRC using their online system. You can change, update, and query your tax code with ease by following the link, and it’ll only take them a short amount of time to sign up, allowing them to use their Government Gateway ID account in future for a range of other services offered by HMRC.
A 1263l tax code isn’t an emergency tax code or a cause for concern. More often than not it’ll be present for employees in workplaces with uniforms, where cleaning and maintaining those uniforms become work related expenses. HMRC grants these employees additional personal allowances to cover those expenses.
If an employee is placed on this tax code by mistake or at a previous job, but their current employment doesn’t require the use of a uniform, then you, as the business owner, should advise them to contact HMRC to let them know of their change in circumstance so their tax code can be changed to the right one. This will mean they avoid underpaying tax and they won’t be hit with a tax bill down the road.
Understanding tax codes is confusing for everybody, but its your role as a business owner to reassure your employees and help them get on the right tax code so they can pay an appropriate level of tax.
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