On the cumulative basis, each payday the employer adds up the employee’s pay since 6 April, takes off the free pay to date allowed by the tax code (or adds additional pay for a K code), works out the total tax due to date and then deducts or refunds the difference from the tax already taken. Because every calculation goes back to the start of the tax year, a change of tax code is applied to the whole year so far, which is why a refund or a larger deduction often appears on the first payslip after a code changes.
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What does cumulative mean in the PAYE rules?
Regulation 22 of the Income Tax (PAYE) Regulations 2003 makes the cumulative basis the default: an employer must deduct or repay tax on that basis unless the regulations say otherwise. Regulation 23 sets out the mechanism using three figures:
- TT, the total tax to date on the employee’s total taxable pay to date;
- PT, the previous total tax to date, as worked out on the last payday;
- UT, any tax that could not be deducted last time because of the overriding limit.
If TT plus UT is more than PT, the employer deducts the excess. If it is less, the employer repays the difference. If they are equal, nothing is deducted or repaid. Regulation 23(5) caps any deduction at the overriding limit, which regulation 2 defines as 50% of the payment.
The alternative is the non cumulative basis in regulations 26 and 27, where each payment is taxed as if it were made on the first day of the tax year. That is what a W1, M1 or X marker on a code means; see week 1 and month 1 tax codes.
How is free pay to date worked out?
HMRC’s PAYE Manual at PAYE70025 describes the tables employers use, which payroll software reproduces:
- Tables A, the pay adjustment tables, give free pay for a suffix code such as 1257L, or additional pay for a K code. Free pay is the total amount of pay the employee may receive tax free up to and including the latest payday. For week 1 it is 1/52 of the allowance in the code, for week 2 it is 2/52, and so on. For monthly pay it is 1/12 in month 1, 2/12 in month 2, and so on.
- Tables B to D, the taxable pay tables, give the tax due on the taxable pay to date. For a suffix code, taxable pay is total pay to date less free pay to date. For a K code it is total pay to date plus additional pay to date.
CWG2, HMRC’s further guide for employers, says to use the table for the tax week or tax month that includes the date of payment. So it is the payday, not the period the work relates to, that decides which week’s or month’s free pay applies.
For 2026 to 2027 the standard Personal Allowance is £12,570 and, outside Scotland, the basic rate of 20% applies to taxable income from £12,571 to £50,270. The code number is the allowance with the last digit removed, so 1257L reflects that standard allowance. Scottish taxpayers have their own bands; see Scottish Income Tax rates and bands.
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What does a cumulative calculation look like?
Illustration only. A monthly paid employee earns £2,500 a month. To keep the figures simple, assume their code gives free pay of exactly £1,000 a month and all taxable pay falls in the 20% basic rate band. In month 3 they take unpaid leave and receive only £500.
| Month | Pay this month | Pay to date | Free pay to date | Taxable pay to date | Tax due to date | Deducted (refunded) this month |
|---|---|---|---|---|---|---|
| 1 | £2,500 | £2,500 | £1,000 | £1,500 | £300 | £300 |
| 2 | £2,500 | £5,000 | £2,000 | £3,000 | £600 | £300 |
| 3 | £500 | £5,500 | £3,000 | £2,500 | £500 | (£100) |
| 4 | £2,500 | £8,000 | £4,000 | £4,000 | £800 | £300 |
In month 3 the employee’s pay is below a month’s free pay, so the unused allowance is given back as a refund of tax deducted earlier in the year. In month 4 the pattern returns to normal. Nobody has to claim anything; the cumulative arithmetic does it.
Why does a tax code change bring a refund or extra deduction?
When HMRC amends a code, regulation 20(3) requires the employer to use the amended code from the next payment. On a cumulative basis the new code is applied to free pay for the whole year so far, not just from the date of change.
Illustration only. Continuing the example, suppose a successful expenses claim raises the employee’s free pay to £1,100 a month and the new cumulative code is first used in month 6. Free pay to date becomes £6,600 instead of £6,000. Taxable pay to date falls by £600, so tax due to date falls by £120 (20% of £600), and that £120 appears as a lower deduction, or a refund, in month 6.
That is the route GOV.UK describes for overpaid tax: once HMRC has the income details, it asks the employer or pension provider to refund the difference through pay, usually when the new code is first used.
A reduced code works the other way. Applied cumulatively, it would recover the shortfall for every earlier month in one payday, which can be a large deduction. Since 2 July 2017 HMRC instead runs a full calculation for the year when it amends a code. Where extra tax is due, it includes an In Year Adjustment in the new code and operates the code on a week 1 or month 1 basis, spreading the extra tax over the rest of the year (PAYE11100). PAYE11105 says the cumulative basis is kept where the adjustment to the date of change is less than £15.
What happens when a week 1 or month 1 code becomes cumulative?
Regulation 23(9) deals with this. If the new code is cumulative and the previous code was not, the previous total tax to date is the total net tax actually deducted. The first cumulative calculation therefore compares the tax due for the whole year to date with what was actually taken, and corrects the difference in one go. This is often how an emergency code overpayment is refunded.
GOV.UK’s guidance for employers says to check whether a new code notice (form P6) includes the employee’s previous pay and tax. If it does, those figures should be added to the payroll record before the next payday, so the cumulative calculation starts from the right totals.
How does pay from a previous job fit in?
Under regulation 43, where a current year P45 shows the cumulative basis was used, the new employer records the total pay and tax to date from it and carries on cumulatively. Regulation 43(9) treats those figures as if the new employer had paid them and deducted the tax, so allowance already used in the old job is not given a second time. If the P45 shows a non cumulative code, regulation 43(11) requires the new employer to keep using the non cumulative basis. See P60, P45 and payslips and the starter checklist for the paperwork.
When does the cumulative pattern break?
- Extra payments in the same period. CWG2 section 1.12 says only one amount of free pay (or additional pay) can be given in a pay period. Where an extra payment is made before the main pay, any refund is held over and set against the main payment.
- Week 53. An extra weekly, fortnightly or four weekly payday is taxed on a non cumulative basis; see week 53 payroll.
- The overriding limit. If tax due would exceed 50% of the payment, the excess is carried forward as UT into the next calculation; see K tax codes.
What mistakes cause problems?
- Ignoring previous pay and tax on a P6. Leaving them out can give the employee a second set of allowances, or deny them a refund they are due.
- Carrying a week 1 or month 1 marker into the new tax year. GOV.UK tells employers not to carry the W1 or M1 part of a code forward.
- Treating a payslip refund as an error. A refund after a pay cut, unpaid leave or a code increase is normally the cumulative system working as intended.
- Using the code from the date of change only. Payroll should apply a new cumulative code to pay and free pay since 6 April, not just future pay.
- Applying a new code late. The amended code must be used from the next payment. An employer who keeps using the old one can leave the employee overpaid or underpaid at the year end, which then has to be put right through a P800 calculation.
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Related Accountapedia entries
- Why National Insurance is not cumulative
- Cumulative preference dividends and arrears
- How a statutory audit works
- Events after the reporting period
- How group relief for losses works
Related cover: Employers liability insurance: the legal requirements and Employers liability vs public liability.
See also: Carer’s leave: a guide for employers; Tax on overtime: how overtime pay is taxed.
Sources
- legislation.gov.uk: SI 2003/2682, regulation 22
- legislation.gov.uk: SI 2003/2682, regulation 23
- legislation.gov.uk: SI 2003/2682, regulation 2
- legislation.gov.uk: SI 2003/2682, regulation 27
- GOV.UK: Manual page PAYE70025
- GOV.UK: 2026 to 2027 employer further guide to paye and national insurance con
- GOV.UK: Income tax rates
- GOV.UK: What your tax code means
- legislation.gov.uk: SI 2003/2682, regulation 20
- GOV.UK: Tax codes
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.