Dynamic Tax Coding : Starting July 2017

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August 18th 2022
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Dynamic Tax Coding : Starting July 2017

HMRC can now adjust tax codes once a month to make sure tax deducted via PAYE is correct.

Due to the manner in which the PAYE tax system works, people with irregular income, multiple sources of income and special circumstances can end up under or overpaying the amount of tax on their payslips.

HMRC uses tax codes to determine the amount of tax to deduct and tax codes determine the the personal allowance and the rates to use - but the system is far from infallible. Estimates put near eight million taxpayers paying the incorrect amount of tax - with the vast majority overpaying and being in low income brackets.

Starting from last month HMRC changed the way it issues tax code notifications. It now creates a new tax code immediately once information is received on pay from employers, pension providers, the taxpayer themselves or other sources. Using 'Dynamic Coding', or 'PAYE refresh', HMRC is doing the tax code change as soon as possible rather than waiting for the start of the new tax year - and by doing so hopes to prevent or reduce the amount of incorrect tax deductions out there.

A tax code can be adjusted to change the amount of money earned that is tax-free. If a situation arises where the taxpayer has paid too much tax in the tax year, the tax code can be adjusted to give a full allowance at any point during the year - significantly reducing the amount of tax deducted on any particular payslip. Hopefully the total tax paid at the end of the tax year correlates to the correct amount once checked against total earned.

As a result budgeting might become more difficult as for some the payslip take home pay could become unexpected as tax codes are adjusted multiple times to recover/refund tax paid. HMRC can technically change the tax code every month so payslips could be in for a bumpy ride.

Use our payslip calculator to check/estimate a payslip based upon any tax code. As long as the tax paid to date and income earned to date are correct (these are taken from your previous payslip) - you can enter any adjusted tax code and estimate your next take home pay.

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