Tax codes that are applied on a cumulative basis means that tax calculations look at the entire tax year when performing the tax calculation. Using a tax code on a cumulative basis means that every payday, the calculation performed is to work out the tax due on an employee’s earnings for the (tax) year to date then deduct from it the tax they have already paid on their earnings that (tax) year. The remaining figure is the tax due for the pay period.
A Cumulative Tax Code allows for an individual’s weekly / monthly Tax Free Allowance to be carried forward if it is not used. As an example – if an individual were to have a break from work (for example, due to unpaid leave or sickness etc), when they resume, it is often the case that they will pay little or no Tax until they have caught up with their Tax Free Allowances.
A non-cumulative tax code would be signified by an “X” or “W1/M1″ following the code. In these cases the tax would be worked out purely on the taxable pay for each individual pay period. Each payday is treated as if it is the first week or month of the tax year. Previous pay and tax details are ignored.
You may be put on an emergency tax code if you change jobs. HM Revenue and Customs (HMRC) will correct it automatically after you’ve given your employer details of your previous income or pension.
Your employer will get these details from your P45 – if you don’t have one, they should ask you for further information.
HMRC will also update your tax code when:
After your tax code changes
HMRC will adjust your tax code so you pay the right amount of tax across the year. They’ll write to you or email you when your tax code has been updated.
They will also tell your employer or pension provider that your tax code has changed. Your next payslip should show:
- your new tax code
- adjustments to your pay if you were paying the wrong amount of tax
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If your employee’s tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, eg ‘577L W1’ or ‘577L M1’. Calculate your employee’s tax only on what they are paid in the current pay period, not the whole year.
Updating for the new tax year
HM Revenue and Customs (HMRC) will tell you between January and March about any new tax codes to use for employees in the new tax year. This starts on 6 April.
If an employee’s tax code isn’t changing, HMRC won’t contact you and you should carry forward the employee’s tax code to the new tax year.
If your employee’s tax code ends with ‘M1’ or ‘W1’ (‘month 1’ or ‘week 1’), don’t carry this part of the code into the new tax year.
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Tax codes for this new tax year beginning 6th April 2015 will increase by 60 if you have a tax code ending in L
(eg if your tax code was 1000L for the tax year ending 5th April 2015, your new tax code for this year will be 1060L)