How do cumulative and non-cumulative tax codes work in UK payroll?

As an employer, you need to understand the distinction between cumulative and non-cumulative tax codes when navigating UK payroll legislation in order to ensure accurate pay and avoid costly errors. 

What is a cumulative tax code?

The cumulative basis is the standard for the UK workforce, designed by HMRC as the most accurate method for calculating PAYE (Pay As You Earn) across the tax year.

How does cumulative tax work?

So, how does it actually work? On a cumulative code, the calculation looks at the bigger picture every time you run payroll. It doesn’t just assess the current month, it calculates the overall balance owed based on:

1. Total gross earnings: Accrued from the start of the tax period (6th April) to the current time.

2. Accrued allowance: The total tax-free personal allowance accumulated by that specific pay run.

3. Tax paid: The total tax actually deducted in previous periods.

The logic follows this specific formula:

(Total Gross Earnings − Accrued Allowance) × Tax Rate − Total Tax Paid Previously = Tax Due This Period

The ‘self-correcting’ nature of the calculation ensures stability. If an employee paid too much tax in April, a cumulative calculation in May will lower the deduction to compensate.

Why does cumulative tax benefit the employee?

Cumulative codes smooth out tax fluctuations for employees with variable wages. Among the various tax codes, the common tax code for 2025/26 and 2026/27 is 1257L. Using this cumulatively ensures the £12,570 frozen allowance is spread evenly, allowing for approximately £1,048 of tax-free income monthly.

Payroll complexity slowing down your HR team?

PayFit keeps you compliant with automatic tax and NI updates, lets employees access their own payslips and records instantly, and gets your system live in days, so payroll becomes background work, not a monthly project.

End the payroll struggle

What is a non-cumulative tax code?

A non-cumulative tax code treats every pay day as a stand-alone event, and ignores history.

This means that tax is only calculated based on the earnings in that individual period and doesn’t consider any tax already paid, or personal allowance that has been used. In other words, it only concerns that window of time. 

The disadvantage, of course, is that any unused allowance won’t roll over into future pay periods. And that could mean an employee ends up paying too much tax at some stages.  

Non-cumulative tax codes are often referred to as ‘W1/M1’ or ‘Week 1/Month 1’ bases. Unlike cumulative codes, these do not take into account income or tax paid from previous periods within the tax year.

How do you identify Week 1 and Month 1 non-cumulative codes?

You can usually spot these codes by the ‘W1’, ‘M1’, or ‘X’ suffix (e.g. 1257L W1). The specific code used will determine how the tax is applied.

• Mechanism: The system considers exactly 1/12th (or 1/52nd) of the annual allowance for that specific period only.

• Isolation: It ignores previous pay or unused allowances.

• Result: Employees may pay more tax in the short term as they cannot make use of unused allowances from previous periods.

What are the common triggers for non-cumulative codes?

Non-cumulative codes are often used on an emergency basis, typically when HMRC lacks sufficient information to set a cumulative one. This often happens when:

• A new starter joins a job without providing a P45 immediately.

• The employee’s tax affairs are under review by HMRC.

• A temporary ‘pause’ is placed on tax history to prevent underpayment.

How do cumulative and non-cumulative tax code bases compare?

What is a practical example and how it affects pay?

To see this in practice, let’s use, as an example, John, who earns £300 per week. He works weeks 1-2, takes an unpaid break for weeks 3-4, and returns in week 5.

How should you manage code changes and year-end compliance?

With the UK government freezing personal allowance thresholds through to April 2028, staying compliant is vital in order to manage the effects of the fiscal drag. Whether your employees are in England, Wales, or Scotland, accurate application of codes (such as the 'S' prefix for Scottish rates or 'C' for Welsh) is critical, particularly when the tax rates differ.

How should you handle HMRC notices?

As an employer, you will frequently receive P6 (mid-year change) or P9 (start of tax year) notices instructing code changes (e.g. due to changes in company benefits, like the use of a company car, or medical insurance). Here’s what needs to happen:

• Action: Apply these immediately.

• Cumulative code: Your payroll software will recalculate the totals.

• Non-cumulative code: The new rule must be applied moving forward only.

What are some common triggers of tax code changes?

To help you spot why a code might change, here are the most common triggers:

Why are modern tools essential for UK SMEs in dealing with tax code changes?

Manually calculating cumulative adjustments is risky. The best solutions for UK SMEs handle these switch-overs automatically.

Using an HMRC compliant system ensures that, when a P6 notice arrives, all the relevant information updates instantly. This automation acts as a safeguard, flagging inconsistencies and ensuring statutory changes for the current tax year are applied without manual intervention. This allows you to focus on paying your people correctly, efficiently managing their benefits and workplace pension contributions, and growing the business, rather than manually wrangling Excel spreadsheets.

Want to experience the future of payroll?

Book a demo