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If you're finding that an employee's tax is higher or lower than a previous month, you should check if the employee has had any of the following:
- A Tax Code change in the current month
- A Tax Code change in a previous month
- A fluctuation in Gross pay at any point from April - present
Employee taxes are calculated cumulatively, providing the employee is not on a W1/M1 tax code. Therefore if an employee has had any of the above since April, their tax will fluctuate.
HMRC have a useful PAYE calculations online calculator you can use to check. Click here to open the calculator.
An employee's tax code has changed from 719L to 1257L in August
This would mean that their annual and Year to Date Tax Free Allowance has increased, and therefore their tax will need to be adjusted to account for the overpayment for April → July. August's PAYE liability will be reduced; and will increase again in September, inline with the thresholds for their tax code.
An employee's tax code has changed from 1257L to 719L in August
This would mean that their annual and Year to Date Tax Free Allowance has decreased, and therefore their tax will need to be adjusted to account for the underpayment for April → July. August's PAYE liability will increase; and will decrease again in September, inline with the thresholds for their tax code.
An employee has an additional gross addition/deduction in August's pay
Tax is calculated cumulatively, therefore the calculation would be based on the total earnings up to and including August, minus the Year to Date tax free allowance for their tax code. Tax due will be the calculated Year to Date, minus tax already paid up to and including July.
Please note that HMRC do not notify us of reasons for a tax code change. Therefore if your employee does not agree with their new tax code, they will need to contact HMRC directly. You can find their contact details here.