Tax code 1087L means HMRC has set your tax-free personal allowance at £10,870 for the year, which is £1,700 below the standard £12,570 that most employees receive. The reduction almost always exists because HMRC is collecting tax on something else through your wages: a taxable benefit from your employer, an underpayment carried over from a previous year, or another source of untaxed income. The L on the end confirms you still qualify for the personal allowance in principle. Only the number has been trimmed.
How the Code Is Built
Every PAYE tax code is a number plus a letter. Drop the last digit off the number and you have your tax-free allowance in pounds, so 1087 becomes £10,870. Your employer divides that figure evenly across your pay periods and deducts income tax only on earnings above it.
The letter L means you get the standard personal allowance. For 2026/27 that standard sits at £12,570, frozen at that level since April 2022, and the freeze runs through to April 2031. The most common code in the UK is 1257L, which passes the full allowance through with no adjustments. A code of 1087L tells you HMRC has taken £1,700 off that baseline for a specific reason tied to your record.
Why Your Allowance Has Been Reduced
The £1,700 gap represents what HMRC believes it needs to tax on top of your regular wages. A handful of situations account for most 1087L codes.
Employer Benefits
Taxable benefits are the most common trigger. Private medical insurance premiums paid by your employer are taxable in your hands. A company car is taxed as a percentage of the car’s list price, with the percentage depending on CO2 emissions: a fully electric car is taxed at 4% of list price for 2026/27, while a petrol or diesel car emitting 160g/km or more is taxed at 37%.
Rather than bill you separately, HMRC subtracts the value of these benefits from your allowance so the tax comes out of your wages automatically. Your employer reports the values on a P11D each year, and HMRC uses those figures to set your code.
Underpaid Tax From a Previous Year
If you underpaid last year, HMRC often recovers the shortfall by cutting this year’s allowance by the same amount. A £1,700 underpayment lines up neatly with a 1087L code, spread across twelve months instead of demanded as a lump sum. If the monthly deduction would cause hardship, you can ask HMRC to spread the recovery over two or three years.
Other Untaxed Income
Small amounts of untaxed income can also pull your code down. Rental profits below the Self Assessment threshold, or savings interest above your personal savings allowance, are typical examples. HMRC estimates the untaxed amount and subtracts it from your allowance so tax gets collected through payroll instead.
A Relief That Has Been Removed
Adjustments run in both directions. Fees paid to an HMRC-approved professional body that you need for your job qualify for tax relief, which increases your code. If that relief was previously in your code and has since dropped out, its removal could be part of what has pushed you down to 1087L.
How Much Extra Tax This Costs You
The cost of a 1087L code depends on your top rate of tax. At the basic rate of 20%, a £1,700 reduction in allowance costs £340 a year, or roughly £28 a month. At the higher rate of 40%, which applies to earnings between £50,271 and £125,140, the same £1,700 costs £680 a year.
To work out your own figure, multiply £1,700 by the rate that applies to your top slice of income. That is the extra tax coming out of your pay compared with someone on 1257L.
Checking the Breakdown
The quickest way to see exactly what makes up your code is the “Check your Income Tax” service in your Personal Tax Account on GOV.UK. Sign in with your Government Gateway credentials; the first time you may need photo ID to verify your identity. The HMRC app shows the same information on your phone.
Inside the service you will see your current code with an itemised list of every allowance and every deduction HMRC has applied. That is where mistakes become visible. Worth checking:
- Benefits you no longer receive. A company car handed back six months ago, or medical cover that ended when you changed jobs, should not still be reducing your allowance.
- Benefit values that don’t match reality. Compare HMRC’s figures against the P11D from your employer, which must be provided by 6 July after the end of each tax year.
- An underpayment being collected twice. If a past tax debt has already been settled through Self Assessment or a direct payment, it shouldn’t also be sitting in your code.
- Estimated untaxed income that looks too high. HMRC’s estimates for savings interest or property income are sometimes inflated.
Have your recent payslips, your P60, and any P11D forms in front of you before you start. It is much easier to spot a divergence when you can see the real numbers.
Getting the Code Changed
If something is wrong, you can update it directly through the Personal Tax Account. Open “Check your Income Tax,” select the item, and submit the corrected figure. You can report that a benefit has ended, revise estimated income, or flag that an underpayment has already been settled.
If you would rather not do it online, HMRC’s income tax helpline is 0300 200 3300. You can also write to Pay As You Earn, HMRC, BX9 1AS, with your full name, address, and National Insurance number.
Once HMRC processes the change, they issue an updated P2 coding notice showing the revised calculation. Your employer receives a digital notification of the new code, and the correction usually shows up in your pay within a few weeks. Because the code is applied cumulatively, the first payslip after a mid-year correction often includes a catch-up adjustment for the earlier months, which can produce a noticeable jump in take-home pay.
If You’ve Already Paid the Wrong Amount
Being on the wrong code for part of the year does not mean the money is lost. After the tax year ends on 5 April, HMRC reviews PAYE records and sends a P800 tax calculation or a Simple Assessment letter to anyone who has overpaid or underpaid.
An overpayment P800 tells you the refund amount and how to claim it. Refunds can usually be requested online and reach your bank within five working days; if you don’t claim, HMRC posts a cheque after a waiting period. An underpayment letter explains the options for settling the balance, which frequently means an adjustment to the following year’s code, exactly the mechanism that may have produced your 1087L in the first place.
If You Live in Scotland
Scottish taxpayers should see an S prefix, so the equivalent code is S1087L. The way the £1,700 reduction is built into the allowance is the same, but Scotland applies its own bands and rates: a starter rate of 19%, a basic rate of 20%, and intermediate, higher, advanced and top rates above those. The extra tax from the same reduction will differ slightly depending on which Scottish band your income falls into.
If you live in Scotland but your code shows 1087L with no S, tell HMRC. Paying under the wrong country’s rates creates a mismatch that has to be corrected later.
If You Earn Above £100,000
Once adjusted net income passes £100,000, the personal allowance itself starts to taper: £1 of allowance disappears for every £2 of income above the threshold, and the allowance vanishes entirely at £125,140. That taper applies on top of any benefit-related reduction, so a 1087L code on a salary near or above £100,000 could reflect the taper, taxable benefits, or a combination of both. The breakdown in your Personal Tax Account will show which.
Between £100,000 and £125,140 the taper produces an effective tax rate of 60%, because you pay 40% on the income and lose £1 of tax-free allowance for every £2 earned. Pension contributions and charitable donations that bring adjusted net income back below £100,000 can restore part or all of the allowance.