Cumulative Tax Code – What It Means and When to Use One

A UK tax code features a combination of numbers and letters. There are different types of tax codes, each of which refers to a different situation, and each of which has implications on your Personal Allowance. In this post, we’ll explain the difference between a Cumulative Tax Code, and a Non-Cumulative Tax Code.

What is the Most Common Tax Code?

Most UK workers currently have the tax code 1257L, which basically indicates that they have one job or pension.

A UK tax code features a combination of numbers and letters

What is a Cumulative Tax Code?

Most UK workers are on a cumulative tax code. If you’re on a cumulative tax code, HMRC calculates your tax based on your overall year-to-date earnings. This means that they calculate the tax due on each payment after taking into account:

  • The amount of tax you’ve already paid this year.
  • How much of your accumulated tax-free Personal Allowance you’ve used.

How to Tell If Your Tax Code is Cumulative?

A cumulative tax code will usually end with the letter L (for example 1257L). But you can easily tell if a tax code is cumulative because it does not contain any letters that indicate that it’s an emergency tax code, such as W1, M1, or X.

If a tax code ends with these letters, it means it’s a non-cumulative tax code.

What is a Non-Cumulative Tax Code?

A non-cumulative tax code ends with either the letters W1, M1, or X. This means that your tax is calculated solely on your earnings in a given individual pay period.

With a non-cumulative tax code, when calculating your tax, HMRC will not take into account any tax you’ve already paid, or how much of your personal allowance you’ve used.

What’s the Difference Between a Cumulative and a Non-Cumulative Tax Code?

The key differences between a cumulative and non-cumulative tax code are:

  • A cumulative tax code considers your entire circumstances – including how much you’ve already paid, and how much of your Personal Allowance you’ve used.
  • A non-cumulative tax code considers only how much you’ve earned in a given period, regardless of your wider circumstances.

If you’re on a non-cumulative tax code, your unused Personal Allowance does not roll over into future pay periods. This usually means that you’ll end up paying more tax than you actually owe.

How Do I Find Out My Tax Code?

Your tax code will be written on your payslip. You can also use the government’s online tax code checking tool.

Why Am I On a Non-Cumulative Tax Code?

Usually, HMRC puts people on emergency tax codes if they do not readily receive your income details following a change in circumstances. This might happen after you start a new job, after you work for an employer after a period of being self-employed, or if you receive company benefits or the State Pension.

Being placed on an emergency tax code invariably means that your payslip won’t be as big as you were expecting. But the good news is that they’re intended to be temporary measures. Usually, HMRC will update your tax code once they receive your full income details.

Getting Off a Non-Cumulative Tax Code

  • If you’re an employee – Tell your employers as soon as possible. You can give them a thorough update on your income circumstances through giving them the P45 from your previous job. If you do not have this, your employer should ask you for all the information they need. They will then pass this information onto HMRC, and you should be on the correct tax code in no time.
  • If you’re an employer – You’ll have to collect all the necessary income information from whichever employee has been placed on the emergency tax code, and then forward this information to HMRC. You may have to complete a PAYE Coding Notice query form. Once you’ve submitted your notice, HMRC should inform you when they change the code.

After you’ve changed your tax code, you may get a rebate if you’ve paid too much tax. However, if HMRC finds that, given your circumstances, you have not paid enough tax, you’ll stay on the emergency code until you’ve paid what you owe for the year.

You can read HMRC’s full guide to tax codes.

Reliable Support For Your Employees

Ensuring your employees pay the correct tax is just one of your many responsibilities as an employer.

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