HM Revenue & Customs (HMRC) has announced amendments to how Pay As You Earn (PAYE) tax codes are calculated, effective from April 2026. The revisions will result in the automatic removal of certain employment expenses and higher rate
Gift Aid relief from tax codes where HMRC’s records indicate they are no longer accurate or relevant to the taxpayer’s circumstances. This policy aims to enhance the accuracy of tax deductions at source and to ensure that only legitimate, up-to-date claims are reflected in individuals’ PAYE codes.
The changes follow recent reviews into errors and outdated information within tax coding notices.
Summary of PAYE tax code changes
From the start of the 2026-27 tax year, employment expenses and higher rate Gift Aid relief that no longer apply to an individual’s situation will be removed from their PAYE tax code.
HMRC will make these adjustments automatically using the most up-to-date information available from taxpayer records. The measure is designed to help maintain up-to-date codes, reflecting the current entitlements and claims of employees.
Taxpayers affected will receive updated notices, with an opportunity to address any discrepancies.
Background to the policy revision
PAYE tax codes are used to instruct employers on how much income tax to deduct from employees’ salaries. Historically, incorrect claims for expenses or Gift Aid in tax codes have resulted in over- or underpayments of tax.
HMRC’s revised approach reflects ongoing efforts to address the widespread issues of incorrect tax deductions, which have previously led to large cumulative errors.
The new system intends to reduce the administrative burden for both HMRC and employers, while providing greater certainty for taxpayers. The adjustments follow repeated findings that outdated claims often persist on an individual’s record, leading to coding errors year after year.
Conditions for removal of employment expenses
According to the guidance published by HMRC, removal of employment expenses exceeding £120 from a PAYE code will occur under specific conditions.
These include cases where the individual has no current PAYE income, there is a complete tax year employment gap since the expense was first claimed, or the taxpayer has not submitted a Self Assessment return since 2021-22 in cases where such a return should have been made for employment expenses.
In addition, if an individual’s claimed employment expenses included in the tax code are greater than those declared in their 2022-23 Self Assessment return, HMRC will adjust their code to reflect the actual figures. These changes are based on cross-referencing available compliance data and filing records.
Criteria for Gift Aid relief changes
Higher rate Gift Aid relief will be removed from the PAYE code when the same amount has been coded for at least three consecutive years, and the taxpayer has not submitted a Self Assessment return during that period.
HMRC states that these parameters are intended to ensure Gift Aid relief accurately aligns with current charitable giving and eligibility for higher rate tax relief.
Taxpayers who remain eligible for higher rate Gift Aid relief can restore their claim by submitting the appropriate evidence through the Self Assessment process or via HMRC’s online services. Regular review of coding is encouraged to minimise error.
Taxpayer actions and appeal process
If taxpayers believe that the adjustment to their tax code is incorrect, HMRC advises individuals to contact the department or submit supporting information online.
Claims can be lodged using government digital services, ensuring disputed expenses or Gift Aid reliefs are promptly reconsidered. The update is expected to prompt more taxpayers to periodically check their PAYE codes for accuracy, particularly after periods of changed employment or variations in charitable giving.
Taxpayers are reminded to retain records supporting all claims made through PAYE or Self Assessment.
Final Summary
HMRC’s scheduled revision of PAYE tax codes, commencing April 2026, will see automatic removal of some employment expenses and higher rate Gift Aid reliefs where no longer substantiated by current data.
This initiative is expected to reduce errors, ensure more accurate tax collection and encourage regular review of taxpayer entitlements. While the change may initially affect individuals with historical or ongoing claims, it is anticipated to simplify processes for employers and employees alike.
For those seeking further support or clarification on their tax position, tools such as the Pie app can assist in understanding coding notices and maintaining compliance.
