The 118L tax code tells your employer to give you just £1,180 of tax-free pay for the year, instead of the £12,570 that comes with the standard 1257L code. HMRC arrives at 118L by starting with your full personal allowance and then subtracting £11,390 worth of adjustments, usually some combination of taxable work benefits, tax underpaid in an earlier year, a tapered allowance on high income, or estimated savings interest. The letter L confirms you still qualify for the standard allowance in principle; the number shows how little of it you actually get to keep.
What the Numbers and Letter Mean
Every PAYE code is built the same way. HMRC takes your personal allowance, subtracts whatever needs to be collected through your wages, and drops the final digit of the result. That leftover figure plus a letter is your tax code. So “118” represents £1,180 of tax-free income: £12,570 minus £11,390 in adjustments, with the last zero removed.1GOV.UK. Tax Codes: What Your Tax Code Means
The L means you’re entitled to the standard personal allowance. Other letters would signal different situations. M and N cover marriage allowance transfers. BR taxes all your income at the basic rate with no allowance at all. A W1 or M1 tacked on the end marks an emergency code, where tax gets worked out on each pay period on its own instead of being smoothed across the year.2GOV.UK. Understanding Your Employees’ Tax Codes: What the Letters Mean If you live in Scotland your code carries an S prefix (S118L), and the underlying mechanics are the same even though Scottish rate bands differ.3GOV.UK. Income Tax in Scotland
Why Your Allowance Was Cut by £11,390
A reduction that large is rarely one small thing. It’s usually a big adjustment on its own, or several smaller ones stacked on top of each other. The common causes are worth checking in order.
Company Benefits (Benefits in Kind)
If your employer provides perks like a company car or private medical insurance, HMRC treats the cash value of those perks as extra income. Rather than send you a separate bill, they subtract the benefit value from your allowance so the tax comes out of your wages automatically. Your employer reports the figures on a P11D after the tax year ends, and HMRC uses those numbers to set the following year’s code.1GOV.UK. Tax Codes: What Your Tax Code Means A company car alone can wipe out several thousand pounds of allowance, so if you’ve picked one up recently, this is often the main cause.
Underpaid Tax From an Earlier Year
If you owe tax from a previous year and the amount is under £3,000, HMRC will normally collect it by reducing your allowance across the current year rather than asking for a lump sum.4GOV.UK. Pay Your Self Assessment Tax Bill: Through Your Tax Code This is one of the biggest single reasons someone sees their code drop sharply, and it usually corrects itself the year after, once the debt is cleared.
Income Over £100,000
Once your adjusted net income passes £100,000, your personal allowance falls by £1 for every £2 above the threshold, and disappears completely at £125,140.5GOV.UK. Income Tax Rates and Personal Allowances Someone earning roughly £122,780 would land near £1,180 of allowance from this taper alone, producing 118L before anything else is factored in.
High Income Child Benefit Charge
Since October 2025, HMRC has been able to collect the High Income Child Benefit Charge directly through your code. If you or your partner claims Child Benefit and one of you earns above the charge threshold, HMRC lowers your allowance so the charge is recovered in monthly instalments instead of through a Self Assessment return.1GOV.UK. Tax Codes: What Your Tax Code Means
Estimated Savings Interest
Interest above your Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate) is taxable. If you’re employed or drawing a pension, HMRC estimates how much interest you’ll earn this year based on last year’s figures and reduces your code to cover it.6GOV.UK. Tax on Savings Interest: How Much Tax You Pay The estimate can be well out of date. If you’ve moved money into an ISA, spent savings, or seen rates drop, the deduction may be too high.
Marriage Allowance Transfer
Transferring £1,260 of your allowance to a spouse or civil partner under Marriage Allowance lowers your own code accordingly.7GOV.UK. Marriage Allowance On its own that only takes you from 1257L to around 1131L, nothing close to 118L. Stacked with other adjustments though, it adds to the total.
A Second Job or a Pension Alongside Work
Where you have two sources of PAYE income, HMRC normally gives one source your full allowance and puts the other on BR. If the split ends up on the wrong source, or the allocation goes wrong when you start a new job or begin drawing a pension, the code you see may look strange for reasons that have nothing to do with benefits or underpayments.
What 118L Does to Your Take-Home Pay
With only £1,180 of tax-free income instead of £12,570, a much bigger share of your earnings falls into the 20% basic-rate band or 40% higher-rate band.5GOV.UK. Income Tax Rates and Personal Allowances On a £35,000 salary the difference between 1257L and 118L works out at roughly £190 a month less in your bank account. Anyone moving onto 118L will feel it on their next payslip.
One deduction that isn’t affected is student loan repayment. That’s calculated on gross income, not on income after the personal allowance, so a lower tax code doesn’t change what your employer takes for the loan.8GOV.UK. Repaying Your Student Loan: How Much You Repay
How to Check Whether 118L Is Right
The fastest way to see what’s going on is your Personal Tax Account on GOV.UK, or the HMRC app. Once you’re signed in you can view your current code, the income HMRC thinks you’re earning, and a line-by-line breakdown of every adjustment they’ve applied to your allowance.9GOV.UK. Check Your Income Tax for the Current Year
Read each adjustment against what you know to be true today. The errors that show up most often are benefits you no longer receive still being counted, estimated savings interest that’s far too high, and underpaid tax that’s already been settled but hasn’t been removed. Your latest P60 shows total pay and tax for the year just ended, and your P11D lists the benefits your employer reported.10GOV.UK. Your P45, P60 and P11D Form If the figures HMRC is using don’t match those documents, that’s your answer.
Getting the Code Corrected
You can update most details straight from your Personal Tax Account, including reporting that a benefit has ended or that an estimate is wrong.9GOV.UK. Check Your Income Tax for the Current Year The Income Tax helpline handles the same disputes by phone if you’d rather speak to someone.
Once HMRC processes a change they send you a coding notice (form P2) with the new number and notify your employer separately. If you’re paid monthly the new code should appear on your next or the following payslip; weekly-paid workers usually see it by the third pay after the update.11GOV.UK. Tax Codes: If You’ve Paid Too Much or Too Little Tax If you’ve recently started a new job, HMRC asks you to allow 35 days for your new income details to come through before challenging the code.12GOV.UK. Tax Codes: If You Think Your Tax Code Is Wrong
Your employer can’t change your tax code themselves. They’re required to use whatever code HMRC issues, so even if payroll agrees the number looks wrong, the fix has to come from HMRC.
Getting Overpaid Tax Back
If HMRC corrects your code partway through the tax year, you usually don’t need to do anything extra to recover what you overpaid. When your employer receives the updated code they recalculate the tax due for the year to date and refund the difference through your wages, which shows up as an unusually high net pay on the first payslip after the change.11GOV.UK. Tax Codes: If You’ve Paid Too Much or Too Little Tax
If the wrong code isn’t caught until after 5 April, HMRC reconciles the year using final figures from employers and pension providers and writes to tell you whether you overpaid or underpaid, with instructions for collecting any refund. That process can take months, which is why sorting a code out during the tax year is always quicker than waiting for the year-end letter.