The 1123L tax code gives you a tax-free personal allowance of £11,230 for the year, which is £1,340 less than the £12,570 that most employees get under the standard 1257L code. HMRC almost always issues 1123L because something is reducing your allowance: usually a taxable workplace benefit like private medical insurance, a small amount of underpaid tax being clawed back from a previous year, or a combination of the two. You’ll pay a little more tax each pay period than someone on 1257L, and it’s worth checking that the reduction actually reflects your situation.
What the Number and Letter Mean
Every PAYE code has a number and a letter. The letter “L” means you qualify for the standard personal allowance. The number is your tax-free allowance with the final digit dropped, so 1123 stands for £11,230 (1123 × 10). The most common code, 1257L, reflects the full £12,570 allowance that has been frozen since April 2022.1GOV.UK. Tax Codes: What Your Tax Code Means So 1123L tells you HMRC has knocked £1,340 off the standard allowance.
Why HMRC Reduced Your Allowance by £1,340
The £1,340 figure isn’t random. HMRC lowers your allowance by an amount equal to the extra income or benefits it wants to tax through your payroll, and a few situations produce that number.
A Workplace Benefit Worth Around £1,340
If your employer provides private medical insurance, a company car, an interest-free loan, or another benefit in kind, the taxable value gets added to your income. Rather than sending you a separate bill, HMRC collects the tax by shrinking your allowance so it comes out of each payslip. Employers report these benefits on a P11D form, and HMRC uses those figures to set the code.2GOV.UK. P11D A benefit package valued at £1,340 produces 1123L exactly.
Underpaid Tax From a Previous Year
If you underpaid tax in an earlier year and the amount is under £3,000, HMRC will normally recover it by reducing your allowance for the current year rather than asking for a lump sum.3GOV.UK. Pay Your Self Assessment Tax Bill: Through Your Tax Code Underpayments of £3,000 or more can’t be collected through the code; HMRC will contact you separately about those.
A Mix of Smaller Adjustments
Sometimes no single item accounts for the whole £1,340. You might have an £800 benefit and £540 of underpaid tax that together add up. Your coding notice breaks the number down component by component, so you can see what’s driving it.
What 1123L Costs You Each Month
Your employer spreads the £11,230 allowance across your pay periods. Paid monthly, about £935.83 of each month’s earnings is tax-free; paid weekly, about £215.96. Everything above that hits the normal income tax bands.
The extra tax you pay compared with a colleague on 1257L is easy to calculate. It’s £1,340 multiplied by whatever rate applies to your top slice of income. A basic-rate taxpayer pays an extra £268 a year (£1,340 × 20%), roughly £22 a month. A higher-rate taxpayer pays £536 a year (£1,340 × 40%), about £45 a month.4GOV.UK. Income Tax Rates and Personal Allowances The rate percentages themselves don’t change with your code; only the size of your tax-free band does.5GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years
If you live in Scotland, 1123L still sets the same £11,230 allowance, but your income above it is taxed under Scottish bands, which range from a 19% starter rate to a 48% top rate.6Scottish Government. Scottish Income Tax 2025 to 2026: Factsheet The extra tax on your £1,340 will be a bit higher or lower than the figures above, depending on which Scottish band your income sits in.
How to Check Whether the Code Is Right
Before you contact HMRC, log in to the “Check your Income Tax” service on GOV.UK with your Government Gateway or GOV.UK One Login credentials. The service shows your current code, the allowances and deductions behind it, and the estimated income from each job or pension.7GOV.UK. Check Your Income Tax for the Current Year If the reduction matches a real benefit or a genuine underpayment, there’s nothing to fix.
If the figures look wrong, you can update them in the same service. Have your National Insurance number, your most recent P60 (which shows your pay and tax for the year), and any P11D forms for your benefits.8GOV.UK. Your P45, P60 and P11D Form – P60 Enter the current value of any benefits and your estimated annual income; if a benefit has ended or shrunk, updating it triggers a recalculation.
Prefer to speak to someone? The HMRC income tax helpline is 0300 200 3300, open Monday to Friday from 8am to 6pm.9GOV.UK. Income Tax: Enquiries A phone call is often quicker if you have several employers or overlapping tax years to sort out.
Claiming Back Tax If Your Code Was Wrong
If you’ve paid too much because of the wrong code, HMRC usually spots it after the tax year ends and sends a P800 calculation letter. If the letter says you can claim online, a bank transfer typically arrives within five working days; a posted cheque takes up to six weeks. Where the letter says HMRC will send the refund automatically, the cheque should arrive within 14 days of the letter’s date.10GOV.UK. Tax Overpayments and Underpayments: If Your Tax Calculation Letter (P800) Says You’re Due a Refund
Watch the deadline: you have four years from the end of the tax year in which you overpaid to claim a refund.11GOV.UK. SACM12155 – Overpayment Relief: Time Limits for Making a Claim After that, the year is locked. If you suspect the code has been wrong for more than one year, check each year separately; HMRC will issue a single cheque covering all the years due.
Interest If the Reduction Reflects Underpaid Tax
Where part of your 1123L code is HMRC recovering tax you already owed, interest can accrue on that debt. HMRC’s late payment interest rate on income tax is 7.75% as of January 2026, set at the Bank of England base rate plus 4%.12GOV.UK. HMRC Interest Rates for Late and Early Payments On a £1,340 underpayment that works out to about £104 a year on the full balance. Because collection through your code clears the debt gradually across the year, the actual interest charged will be lower than that headline figure. If you’d rather stop the interest, you can pay HMRC directly instead of waiting for the code adjustment to do the work.