Cumulative and non-cumulative tax codes affect how much tax and personal allowance an individual receives in their payslip.
Here, you’ll learn the difference between the two main types of tax codes used in the UK – cumulative and non-cumulative.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
What is a Cumulative Tax Code?
If an individual has a cumulative tax code, such as 1257l or 1250l, they are paying income tax and receiving their personal allowance using the basic, higher and additional tax rates as normal.
Here’s an example:
Penny quits her job which pays her £3,000 per month and her last day is 30 September 2023. She starts a new job on 1 November 2023, gives them her P45 and receives gross pay of £3,500 per month. She has no other income.
Penny receives her unused personal allowance for October 2023 in her November payslip because her tax code is cumulative. That means her employer has sufficient information to give her any missed personal allowance to date.
|September 2023||November 2023|
|Personal Allowance – September 2023||(£1,047.50)|
|Personal Allowance – October 2023||(£1,047.50)|
|Personal Allowance – November 2023||(£1,047.50)|
|Income Tax @ 20%||£390.50||£281.00|
What is a Non-Cumulative Tax Code?
Non-cumulative tax codes have the suffix W1 M1 and it means that an individual is taxed according to the period they are being paid with no adjustment being made for a backlog of any unused personal allowance.
Employers are responsible for giving employees their personal allowance on behalf of HMRC. They don’t want to put people in a position where they have received too much free-pay.
Where they have missing information or an employee has other income, the most cautious approach is to not give any personal allowance backlog. This can happen when someone:
- begins working for an employer after they’ve stopped self-employment
- starts a new job and has not provided a P45
- receive the State Pension
DID YOU KNOW
The W1 M1 tax code is also known as an emergency tax. Other types of emergency tax codes are BR, D0 and 0T. Read this guide to find out more about emergency tax codes, when they are given and what income tax rates apply.
Here’s an example:
Carlos quit his job to pursue self-employment. His final day was 31 May 2023. He decided that being a sole trader was not for him and went back into full-time employment on 1 August 2023 but lost his P45.
On starting his new job her completes a starter checklist ticking box B telling his new employer that he has had another job during the current tax year. This results in Carlos being put on the tax code 1257W1 M1 which is a non-cumulative tax code.
Carlos finished his job on 31 May and started his new job on 1 August. Therefore he has not received his personal allowance for the period between 1 June to 31 July (2 months). But because he is on a W1 M1 tax code, he won’t be given the backlog he is owed. He will receive the personal allowance from 1 August.
How to Claim Missed Personal Allowance on a Non-Cumulative Tax Code
Whether you end the tax year on a cumulative or non-cumulative tax code, HMRC will add up how much tax you have paid and work out whether you owe anything at the end of the tax year.
They will then send you an HMRC tax code notification letter called a P800 detailing what you are owed and how you’ll get a tax rebate.
However, if HMRC discovers, for whatever reason, that you have underpaid your tax during the year, they will recalculate your tax and issue you with a P800 if you owe less than £3,000 or a simple assessment if you owe more than £3,000.
If you are registered as self-employed, any money you are owed will be credited to your tax account.