985L Tax Code: What It Means and How to Check It

A 985L tax code means your employer will let you earn £9,850 in the tax year before deducting any income tax, which is £2,720 less than the £12,570 most people get under the standard 1257L code.¹ That £2,720 gap almost always exists for one of two reasons: HMRC is taxing workplace benefits you receive, or it’s collecting an earlier underpayment through your payslip. Often it’s a combination of the two.

What the Code Actually Says

Every PAYE code works the same way. Multiply the number by ten to get your tax-free allowance for the year, and read the letter as a note about your circumstances. For 985L, that’s £9,850 you can earn tax-free, with the L confirming you get the standard Personal Allowance without any special adjustment such as a Marriage Allowance transfer or a complete removal of your tax-free amount.²

Your employer subtracts £9,850 from your gross annual pay and applies income tax to whatever is left. Spread across twelve monthly payslips, the £2,720 reduction from the standard allowance means an extra £45 or so of taxable income per month, and the actual tax on that depends on which band your top slice of pay sits in.

Why Your Allowance Has Been Cut by £2,720

The gap between 1257L and 985L has to be accounted for somewhere. Three explanations cover almost every case.

Taxable Workplace Benefits

If your employer provides perks such as private medical insurance, a company car, or gym membership, HMRC treats their cash value as taxable income. Rather than sending you a separate bill, the agency collects the tax by shrinking your Personal Allowance.² If your benefits total roughly £2,720 for the year, your code drops from 1257L to 985L, and the tax owed on those benefits then comes off each payslip automatically.

Private medical insurance is the most common single culprit at this level. If your employer pays £2,720 a year for your health cover, that alone explains the code. The taxable value is what your employer pays for the policy, not what you would pay buying it yourself.

A Previous Underpayment Being Coded Out

HMRC can recover tax debts by “coding out” the amount you owe, reducing your tax-free allowance so more tax comes off each pay period. The power sits in Finance Act 2009 provisions inserted into the Income Tax (Earnings and Pensions) Act 2003.³ If you owed around £2,720 from a self-assessment shortfall or a previous PAYE year, that alone would produce a 985L code.

There are limits on how much debt HMRC can pull back this way. If your PAYE earnings are under £30,000, no more than £3,000 can be coded out in a single year. The cap climbs on a sliding scale to £17,000 for earnings of £90,000 or above.⁴ A £2,720 reduction fits well within the limit for almost any earner.

A Mix of the Two

Often the £2,720 is a combination: perhaps £1,500 for a company car and £1,220 for last year’s underpayment. HMRC bundles everything into a single code adjustment, so you can’t identify what’s driving it just from the number itself. The breakdown lives in your P2 Notice of Coding.

How to Check Whether 985L Is Right

Start with arithmetic. Take £12,570 and subtract the total value of your taxable benefits plus any debt HMRC is collecting. If the answer comes out at £9,850, the code is doing what it should. If it doesn’t, something has been miscalculated.

Three documents let you run that check:

Your P2 Notice of Coding, available in your personal tax account, itemises every component that makes up your code. This is the document that tells you why 985L, in your specific case.⁵
Your P11D lists the cash value of every taxable benefit your employer reported for you. Compare the benefit values there against the figures HMRC has used.⁶
Your P60 shows total pay and tax for the previous tax year and is useful for checking whether last year’s numbers match what HMRC now says you owe.⁷

Also look at recent payslips. If the code your employer is applying differs from the one on your latest P2, the updated instruction may not have reached payroll yet.

One thing worth watching for in the opposite direction: professional subscriptions. If you pay fees to an HMRC-approved professional body and membership is necessary for your work, you can claim tax relief, which raises your code number rather than lowering it.⁸ If HMRC hasn’t factored in a subscription you pay yourself, your 985L may actually be too low.

Getting the Code Changed

If the numbers don’t reconcile, report the discrepancy through the “Check your Income Tax” service inside your personal tax account on GOV.UK.⁹ The tool lets you update income details, report benefit changes, and flag errors. You can also call the HMRC income tax helpline and ask an adviser to adjust the code manually with evidence you provide.

Once HMRC processes the change, it issues a revised P2 to you and sends an electronic update to your employer’s payroll.⁵ Your employer then applies the new code from the next available pay run. In practice this can take several weeks to show up on your payslip.

If you disagree with the revised code HMRC issues, you have 30 days from the date of the decision letter to appeal. Miss that and you’ll need a reasonable excuse. If HMRC doesn’t change its mind after your appeal, you’ll be offered a review, and you have another 30 days to accept the review or take the matter to the tax tribunal.¹⁰

What It Costs If the Code Was Wrong

A wrong code shifts your tax liability in one direction every single pay period, so even a small error compounds.

If you’ve been overtaxed because 985L was set too low, HMRC will adjust the current-year code to correct it. You can also claim refunds going back up to four additional tax years beyond the current one. A refund comes through either an adjusted code or a direct repayment.

Underpayments are less forgiving. If your code was too generous and you paid too little tax, you’ll usually owe the difference. Amounts under £3,000 are typically collected through a code adjustment the following year. Larger underpayments trigger a direct bill with a 30-day payment window, and HMRC’s late payment interest currently runs at 7.75%, set at the Bank of England base rate plus 4%.¹¹

One safeguard is worth knowing. If an underpayment of £50 or less arose in the most recent tax year, HMRC generally writes it off. For older underpayments where HMRC had accurate data from your employer but still assigned the wrong code, you may be able to challenge the debt: the underpayment must be more than 12 months old, HMRC must have had correct information, and you must have had a reasonable belief that your tax affairs were in order.

Scottish and Welsh Versions of the Code

If your main home is in Scotland, the code becomes S985L. If you live in Wales, it’s C985L.² The £9,850 tax-free amount is identical in both cases. The prefix simply tells your employer which set of income tax rates to apply to the taxable portion.

Scottish taxpayers face a different band structure with starter, basic, intermediate, higher, advanced, and top rates. For 2025-26, the starter rate is 19% on the first band above the Personal Allowance, rising to 48% on income above £125,140.¹² Welsh rates currently mirror the rest of the UK, though the C prefix exists because the Welsh Parliament can set its own rates.

If Your Code Shows 985L W1, M1, or X

These suffixes mean you’re on an emergency basis. W1 is used for weekly pay, M1 for monthly pay, and X where pay dates vary.¹³ On an emergency code your employer taxes each pay period in isolation, as if you’ll earn the same amount every period for the rest of the year, ignoring the cumulative running total that normally smooths out fluctuations. That can push tax up or down depending on how your pay lands.

Emergency codes usually appear when you start a new job without a P45, or before HMRC has sent your employer updated details. Most cases resolve within a few weeks, though situations involving company benefits or State Pension can keep the emergency marker until the end of the tax year.¹³

1
GOV.UK. Income Tax Rates and Personal Allowances
2
GOV.UK. Tax Codes: What Your Tax Code Means
3
HM Revenue and Customs. Debt Management and Banking – Pre-Enforcement: Coding Out: Legislation
4
HM Revenue and Customs. Transfer From SA to PAYE: Coding Out Debts
5
HM Revenue and Customs. How They Are Used and Calculated: P2 Notice of Coding
6
GOV.UK. Expenses and Benefits for Employers: Reporting and Paying
7
GOV.UK. Your P45, P60 and P11D Form
8
GOV.UK. List of Approved Professional Organisations and Learned Societies (List 3)
9
GOV.UK. Check Your Income Tax for the Current Year
10
GOV.UK. Disagree With a Tax Decision or Penalty
11
GOV.UK. HMRC Interest Rates for Late and Early Payments
12
mygov.scot. Scottish Income Tax
13
GOV.UK. Emergency Tax Codes