647L Non-Cumulative tax code

superstar_2

amiehall wrote: »

A cumulative code would allow everything you've earned and all the tax you've paid in the year to date to be taken into account every time you're paid and helps to make sure that, over the year as a whole, you pay the right amount of tax for your earnings.

A non-cumulative code treats each pay period in isolation. For example if I was paid monthly, each month HMRC would allocate 1/12 of my personal allowance and anything earned over that sum is taxed at 20%.

A difference arises if you have any periods in the year where you earn less. For example I switched from full-time to part-time work part way through last year. As my code was cumulative, every time I was paid after I cut down, I received a bit of tax back in each pay to make sure that at the end of the year, I had the benefit of my full personal allowance. Without that cumulative code, every month where I earned under 1/12 of the personal allowance, I would have lost the "extra" portion of the allowance and, as I paid a lot of tax some months, I would have overpaid for the year as a whole.

Sorry that's ended up a bit verbose. Is that a bit clearer?

Very helpful. Thanks.

In summary, if my minimum wage on any month is more than 1/12 of the yearly tax allowance, then being on cumul or noncumul doesn't really make a difference.

Nubianess

An employer uses the employee's tax code in conjunction with tax tables to calculate the amount of tax they deduct from an employee's wages. They can use codes on a cumulative or a non-cumulative basis.
Using a tax code on a cumulative basis means that every payday you need to work out the tax due on your employee's earnings for the year to date then deduct from it the tax they have already paid on their earnings that year. The remaining figure is the tax due for the pay period, the week or month for example.
A non-cumulative tax code would be signified by an "x" or "wk1/mth1" following the code. In these cases the tax should be worked out purely on the taxable pay for each individual pay period. Each payday is treated as if it is the first week or month of the tax year. Previous pay and tax details are ignored.