A taxpayer got in touch with HMRC as they wanted a tax refund
HMRC has explained a tax allowance rule that applies to many workers. The policy came to light after a question from a taxpayer over social media. They asked how they could change their tax code and said that they wanted a tax refund.
The tax authority responded to ask what their tax code is, to which the person said it is 1257T. HMRC asked them if they had only one source of employment, with the person confirming it is.
Explaining how this would apply to their earnings, HMRC said: “The 1257T tax code gives you the full £12,570 personal allowance, spread evenly across the year—so £1,047.50 of your monthly earnings is tax-free. It functions the same as the 1257L code.”
READ MORE: Warning triple lock rising costs could mean further tax increases
The standard personal allowance means you can earn up to £12,570 a year without paying income tax on this amount. You pay the tax at 20 percent on earnings up to £50,270, and at 40 percent for earnings between £50,271 to £125,140. There is a 45 percent income tax rate for earnings above £125,140.
However, once your earnings reach £100,000, for each £2 you earn above this, you lose £1 of your personal allowance. The personal allowance is frozen at its current level until April 2028.
State pensioners may also want to note the tax-free allowance as the full new state pension is creeping ever close to being subject to an income tax bill. State pension rates are set to go up 4.7 percent next April following the triple lock metric.
This would lift the full new state pension to £241.05 a week, or £12,534.60 a year, just over £45 away from getting a tax bill. You typically need 35 years of National Insurance contributions to get the full new state pension.
A person usually needs 30 years of contributions to get the full basic state pension.