Your tax code is used by your employer or pension provider to work out what tax-free pay you are entitled to and how much Income Tax to take from your pay or pension. HM Revenue and Customs (HMRC) will tell them which code to use.
If you are employed and have only one source of income, and there is nothing unusual about your circumstances or history, you will most likely have a tax code of 1257L from April 2021 (in England). The “L“ indicates that you are entitled to the full personal allowance, but there are a variety of different letters you might see. The personal allowance from 6th April 2021 to 5th April 2022 will be £12,570 but the last digit is dropped when constructing the tax code.
If you have more than one job, you may find that your personal allowance is split across the two workplaces. Otherwise, you may have 1257L on one job and BR on the other. HMRC will apply a BR code when it believes you are a basic rate taxpayer and that your personal allowance is being used in full against another source of income you have. Any income with a BR code will be taxed at 20%.
Your tax code is important because it will affect how much tax you pay. When HMRC issues you with a tax code, you should make sure you check the calculations.
Use the check your Income Tax online service within your Personal Tax Account to find your tax code for the current and past year. If you think your tax code is wrong, you can update your employment details directly on your Personal Tax Account.
More information about tax codes can be found here.