Tax code 1256L

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Does anyone know why some 24-25 tax codes are 1256L and not 1257L? I am not aware of anything in their codes.

Thanks

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paddle steamer
By DJKL
24th Apr 2024 17:32

£2 tax underpaid?

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Replying to DJKL:
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By Matrix
24th Apr 2024 17:54

No I don’t think so. I ran payroll and out of 100 or so employees across all payrolls, about 5 had a tax code of 1256L. One is a family member who doesn’t pay tax and no tax code notice received. Seems odd so wondered if anyone else had the same.

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Replying to Matrix:
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By rmillaree
24th Apr 2024 18:21

agreed somewhat odd

perhaps a piddling amount of "interest" income is the most likley scenario here perhaps?

maybe you have broken then Matrix?

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Replying to rmillaree:
RLI
By lionofludesch
24th Apr 2024 18:22

I'd agree with that if there were no savings allowance.

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Replying to lionofludesch:
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By rmillaree
24th Apr 2024 19:10

the saving allowance does not stop hmrc coding piddling little random interest amounts that may exist or may not exist and may factor in the savings allowance and may not factor in the savings allowance.

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Replying to rmillaree:
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By Matrix
24th Apr 2024 19:28

rmillaree wrote:

maybe you have broken then Matrix?

There is definitely a glitch.

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Replying to Matrix:
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By Leywood
24th Apr 2024 19:49

Horizon at play.

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By Open all hours
24th Apr 2024 20:03

Funny and frightening. It’s only a matter of time before the equivalent of Horizon gets us all.

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Replying to Matrix:
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By FactChecker
24th Apr 2024 20:50

A Glitch in the Matrix ... surely not (although it might explain how Harra slipped through)?

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RLI
By lionofludesch
24th Apr 2024 18:21

1257L should be your standard.

Some coding restriction by a pedant at HMRC?

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Replying to lionofludesch:
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By Matrix
24th Apr 2024 18:36

There is no reason the tax codes shouldn’t be 1257L. Probably will wait for someone who has run Month 1 payroll to see if they have noticed this.

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Replying to Matrix:
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By Not Anonymous
24th Apr 2024 20:13

Matrix wrote:

There is no reason the tax codes shouldn’t be 1257L. Probably will wait for someone who has run Month 1 payroll to see if they have noticed this.

There is.

If HMRC estimate someone's earnings (or PAYE pension) as £11,000 and their only other income is say £5 untaxed interest then HMRC will calculate code 1256L as £5 of the unused Personal Allowance will be used by the untaxed interest.

If the employee/pensioner updated their estimated earnings/pension to £12,570 or more then tax code 1257L would replace 1256L as there would be no spare Personal Allowance (and the interest would be taxable at 0% so no tax code deduction would be needed).

The employee/pensioner wouldn't usually get a tax code in that situation (the 1256L code) as HMRC stopped issuing codes to people without a tax liability several years ago.

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Replying to Not Anonymous:
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By Matrix
24th Apr 2024 21:01

Thanks. Where would HMRC get the estimated £5 untaxed interest from? From the bank directly? It can’t be as the bank doesn’t have their NI number.

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Replying to Matrix:
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By Not Anonymous
24th Apr 2024 21:06

Matrix wrote:

Thanks. Where would HMRC get the estimated £5 untaxed interest from? From the bank directly? It can’t be as the bank doesn’t have their NI number.

Yes, banks have to report both ISA and non ISA interest and HMRC now routinely use this information in tax codes and their PAYE reconciliation calculations.

AIUI the figures currently in use in 2024/25 tax codes will be from 2022/23 and banks will report the 2023/24 figures in the next couple of months.

https://www.gov.uk/guidance/bank-and-building-society-interest-returns

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Replying to Not Anonymous:
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By Matrix
24th Apr 2024 21:18

OK but there is no interest and the NI number has not been provided to anyone apart from us, the employer. I will have to get the family member to set up a PTA.

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Replying to Matrix:
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By Not Anonymous
24th Apr 2024 21:29

Matrix wrote:

OK but there is no interest and the NI number has not been provided to anyone apart from us, the employer. I will have to get the family member to set up a PTA.

It might not be interest but that would be my assumption from the information currently available.

Oddly NINO's have to be provided for ISA's but not non ISA accounts.

HMRC must have some method of matching the data the banks provide with people's tax records. HMRC using this data is not at all unusual these days.

It would be interesting to know the make up of the code and if it was in fact interest or something else which resulted in 1256L rather than 1257L.

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Replying to Not Anonymous:
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By Matrix
24th Apr 2024 21:48

Thanks. PTA set up and £2 interest so you were right. No idea where HMRC got this from and would fall within allowances anyway. There is no functionality within the PTA to remove it.

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Replying to Matrix:
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By Not Anonymous
24th Apr 2024 22:02

Matrix wrote:

Thanks. PTA set up and £2 interest so you were right. No idea where HMRC got this from and would fall within allowances anyway. There is no functionality within the PTA to remove it.

Why would you want to remove it (serious question)?

If however they expect their earnings/pension to be £12,570 or more then they can easily update the estimated income for an employment or pension on their PTA and the coding deduction would be removed.

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Replying to Not Anonymous:
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By Matrix
24th Apr 2024 22:25

They don't need to remove it, they earn tens of pounds a year. I am just interested in case clients ask and the numbers are bigger.

How would updating the earnings change the coding deduction?

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Replying to Matrix:
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By Not Anonymous
24th Apr 2024 23:03

Matrix wrote:

They don't need to remove it, they earn tens of pounds a year. I am just interested in case clients ask and the numbers are bigger.

How would updating the earnings change the coding deduction?

The deduction exists at the moment as there are unused allowances, for example estimated PAYE income of £5,000 and only other income is the interest.

Some of those spare allowances get used by the interest as the Personal Allowance is used before the 0% rates for interest can apply.

But if the estimated PAYE income was say £12,570 then there would be no spare allowances and the interest would then fall to be taxed at 0% and there would be no tax code deduction.

Most cases I have seen don't cause an issue as there is no realistic prospect of the reduced tax code causing tax to be paid unnecessarily.

Where it has been more of an issue is with pensioners who have inflation proofed pensions (retired teachers, NHS staff etc).

HMRC seem to use the latest pension information in one year to calculate the pension income estimate for their initial tax code for the new tax year and don't apply any inflation increase.

As a result I have seen cases where supposedly spare allowances have been used by interest but in reality the pension will be more in the new year and there aren't any spare allowances.

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Replying to Not Anonymous:
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By Matrix
24th Apr 2024 23:38

Thanks. I was trying to work out what all the employees have in common who have this code and they all earn less than the personal allowance so this post has helped me.

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By rmillaree
25th Apr 2024 09:04

"HMRC seem to use the latest pension information in one year to calculate the pension income estimate for their initial tax code for the new tax year and don't apply any inflation increase."

are you talking about state pension ? state pension data is very reliable ONCE the initital fisrt period y2 start is over - cant remember for ongoing one where it was working then went wrong - if it aint working it may be woth contacting hmrc/ dwp as it does work 95% plus of the time ignoring initial glicthes

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By Not Anonymous
25th Apr 2024 09:31

rmillaree wrote:

"HMRC seem to use the latest pension information in one year to calculate the pension income estimate for their initial tax code for the new tax year and don't apply any inflation increase."

are you talking about state pension ? state pension data is very reliable ONCE the initital fisrt period y2 start is over - cant remember for ongoing one where it was working then went wrong - if it aint working it may be woth contacting hmrc/ dwp as it does work 95% plus of the time ignoring initial glicthes

No, pensions reported under PAYE, not the State Pension.

Say you have received £9,000 in the 9 months to when HMRC calculate the initial code for the following tax year. They are likely to use £12,000 as the estimate for the following year, not £12,000 + x%.

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By lionofludesch
25th Apr 2024 09:52

Not Anonymous wrote:

Say you have received £9,000 in the 9 months to when HMRC calculate the initial code for the following tax year. They are likely to use £12,000 as the estimate for the following year, not £12,000 + x%.

How will they know what x is ?

x has been zero for me since I started drawing it. The taxable part of my pension may go down in the near future.

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Replying to lionofludesch:
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By Not Anonymous
25th Apr 2024 10:56

lionofludesch wrote:

Not Anonymous wrote:

Say you have received £9,000 in the 9 months to when HMRC calculate the initial code for the following tax year. They are likely to use £12,000 as the estimate for the following year, not £12,000 + x%.

How will they know what x is ?

x has been zero for me since I started drawing it. The taxable part of my pension may go down in the near future.

That's part of the problem, there is no easy way of knowing.. Some people will have a level annuity. Others an annuity with fixed annual increase. Others will take what they like under pension flexibilities. Then some will have a public sector pension with a new % increase each year. Other DB schemes might have set annual increase or a capped one.

So no one % will be right for everyone.

And the current system seems to be don't apply any increase for anyone.

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Replying to Matrix:
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By FactChecker
24th Apr 2024 23:19

Don't get too hung up on the importance of the NINO.

Although HMRC would like this to be the stand-in for the 'unique person ID' that this country doesn't have, they keep coming up against two uncomfortable facts - (a) it is not a pre-requirement to have one even in order to be an EE (let alone many other ways of earning money), and (b) people often get it wrong (whether by mistake or deliberately).

So, since at least the inception of RTI, they have a series of iterative routines which are designed to 'match' details of an individual to their central databases.
And in the absence of a guaranteed match (from a guaranteed unique ID), the routines move through a series of steps (using ever more fuzzy logic) until either they've got a match or they 'give up' (aka put in a pot awaiting human review).

Without giving the game away in terms of details, those steps start with the obvious one of checking whether a record already exists with that NINO - and if so whether 'enough' of the other data matches to be a 'credible' match.
The remaining steps will in one form or another attempt to match components of the person's names, their gender, their DoB and (probably least reliably) last known address/postcode.

To put this into context, there were nearly 17m 'starters' reported via FPS files in 2022/23 and 'only' fewer than 1m had blank/incorrect/temporary NINOs ... not nearly good enough for anyone's liking, but probably par for a PAYE system that has outgrown its original assumptions.

Anyway, back to your original point, HMRC hold enough data (and the 3rd parties supplying them with files of pensions, benefits, interest, etc also hold enough data) that those existing 'matching' routines are put to use even where a NINO isn't supplied alongside the numbers.

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By Matrix
24th Apr 2024 23:42

Thanks, this is helpful in case anyone asks. Important to chase all the bank interest up this year as no doubt HMRC will have a record.

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By rmillaree
25th Apr 2024 09:07

To put this into context, there were nearly 17m 'starters' reported via FPS files in 2022/23 and 'only' fewer than 1m had blank/incorrect/temporary NINOs ... not nearly good enough for anyone's liking, but probably par for a PAYE system that has outgrown its original assumptions.

yes - hmrc flagging up minor isues in others as wasting time when they really need to up their game consistency wise - rti glicthes are often so bizarre a 3 year old could flag em in 10 seconds and yet employers helpline and paye/agent helpline cant see the real data so preume people are lying when they flag up hmrc errors !

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By Open all hours
24th Apr 2024 20:12

Could be anything. Just done the 2024 return for employed and self-employed lady. £1600.00 paid on the 2023 return. Out of nowhere last November, coding notice issued to collect ‘tax we think you’ll owe this year £44.00’. Actual tax due on 2024 return £ 1380.00. They know not what they do.

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By Tax Dragon
25th Apr 2024 04:03

Brilliant explanations by Not Anonymous.

Matrix, somehow your concern about this makes £15 feel like a fortune.

https://www.accountingweb.co.uk/any-answers/omitted-bank-interest

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Replying to Tax Dragon:
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By Matrix
25th Apr 2024 05:49

Haha. It wasn’t the amount, it was just a bit freaky that a number of codes were the same.

Yes the explanation is very helpful. You never know, clients could ask this, although if it applies to those earning less than the personal allowance then unlikely.

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By Tax Dragon
25th Apr 2024 06:10

Yeah the intelligent thing for HMRC to do (which is of course why it doesn't happen) would be to use 1257 even where earnings are less than PA. If there's no PAYE, no effect; if earnings increase such that there is PAYE, the higher code would be the correct one.

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RLI
By lionofludesch
25th Apr 2024 07:00

That's HMRC for you. Look after the pennies and let the pounds slip away to some scammer

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By Nebs
29th Apr 2024 11:59

Anyone remember the old tax and NI tables that were used to calculate payroll manually? As everything is on computer these days, there is no longer any reason to remove the last digit on a tax code, and assume for everyone that it is a 9. It could easily be changed to the full number, 12570L or whatever, and tax and NIC calculated to the penny.
At a guess I think this small change would bring in excess of £40million to the exchequer.

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By lionofludesch
29th Apr 2024 12:10

Nebs wrote:

Anyone remember the old tax and NI tables that were used to calculate payroll manually? As everything is on computer these days, there is no longer any reason to remove the last digit on a tax code, and assume for everyone that it is a 9. It could easily be changed to the full number, 12570L or whatever, and tax and NIC calculated to the penny.
At a guess I think this small change would bring in excess of £40million to the exchequer.

Not if HMRC are going to issue 1256L coding notices.

Which may be their plan .....

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By Retrocanary
29th Apr 2024 12:09

Yes, could be interest as the banks now report this directly to HMRC.

However, I've also had a handful of cases (including myself) where HMRC have somehow got the idea that the client is in receipt of a private medical insurance benefit from their employer which never exited, and even if it did would likely be worth a lot more than the piddling amounts suggested on the tax code notification.

If you're desperate to get to the bottom of this, the client is going to have to log into the gateway or failing that, sigh, someone is going to have to try and contact a human being at HMRC.

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